‘Department for Transport and HS2 Ltd cannot yet demonstrate that the conditions are in place to secure value for money’ National Audit Office (27 March 2023)

By stewartbThe latest National Audit Office (NAO) report into High Speed Rail (HS2) provides a rich vein of material for use in ‘shock’ media headlines and ‘outraged’ quotable comments from opposition politicians. As after publication of many NAO reports critical of Westminster governments, I suspect we won’t see any of this!  

Source: National Audit Office (27 March 2023) High Speed Two: Euston. Value for Money  Report (https://www.nao.org.uk/reports/high-speed-two-euston/#downloads )

Background

•   HS2 Euston station – a new station development led by High Speed Two Ltd (HS2 Ltd), which is responsible for delivering the HS2 programme•   Network Rail Euston station – redevelopment of the Euston conventional station led by Network Rail; and•   ‘Over Site Development’ of the Euston area above and around these stations, providing a ‘redesigned space with new housing and commercial plots’ led by Lendlease, a private property development company.

The design of the HS2 station and its degree of integration with the Network Rail Euston station continue to be the subjects of review.

The UK Department for Transport (DfT) is the sponsor of all three projects and is responsible for funding and overseeing their delivery.

Key findings of the NAO •   February 2020: the Oakervee Review raised concerns about the design of the HS2 Euston station –  ‘it concluded that the existing design for HS2 Euston, first proposed in 2015, was not satisfactory’•   April 2020: HS2 Ltd set a budget of £2.6 billion for the HS2 Euston station•   June 2020: HS2 Ltd then revised this, estimating that HS2 Euston station could cost as much as £4.4 billion

That’s quite a jump in budget estimate in just three months!

Autumn 2021: ‘DfT confirmed a revised plan for the HS2 Euston station but the uncertainty until then led to HS2 Ltd progressing some designs that were subsequently changed. While DfT sought to minimise nugatory spend, HS2 Ltd could no longer use much of the previous design work, at a cost of £106 million (in cash terms)’.

The NAO adds: ‘The revised HS2 Euston station design addresses previous issues relating to the design and build of the station but it did not solve the challenge of designing a station within budget –  the estimated cost for this option exceeded the budget of £2.6 billion.’

September 2022: ‘DfT’s independent technical reviewer reported to DfT that it was not likely that the project could be delivered within budget. The reviewer also highlighted that delivering within HS2 Ltd’s reported estimate of £3.3 billion at that time would be a significant challenge.’

March 2023: ‘HS2 Ltd reported to DfT that, following detailed work, the revised estimated cost now stood at £4.8 billion, £2.2 billion above HS2 Ltd’s budget for the station.’

The NAO report notes the recent decision taken by DfT and HS2 Ltd to pause new construction work at HS2 Euston for the next two years while they look again at ‘how to achieve an affordable and deliverable design that provides value for money.’ However, the NAO concludes that: ‘As a result of this pause there will be additional costs and overall spend could increase’.

On the impact of deferring spending on the HS2 programme, we learn that: ‘DfT and HS2 Ltd do not yet know what the impact of this pause will be on the overall schedule of the HS2 Euston station and when it will open.’ Moreover: ‘DfT and its delivery bodies do not yet have a comprehensive integrated plan for the programme of work across the three projects at Euston, which increases the risk on works across the whole programme’.

And then reinforcing this lack of an integrated plan, we learn: ‘To maintain momentum HS2 Ltd had proceeded with integration work despite the uncertainty and additional risk to the HS2 station from the Network Rail Euston station project not yet being funded.

‘The two stations are expected to be owned and operated separately but they need to be delivered alongside each other. HS2 Ltd has proceeded with design work on the assumption that both it and the Network Rail project will be funded and they will be able to take an integrated approach.

The NAO notes: ’However, the outline business case for the redevelopment of the Network Rail station is not expected to be approved until spring 2023, and it is not clear if Network Rail can deliver it within its initial estimate of £1.3 billion to £1.55 billion. Until the decision to pause new construction work on the HS2 Euston station in March 2023, HS2 Ltd had therefore proceeded under the risk that designs may be further amended or that early decisions taken now may constrain later designs.’

The NAO draws the following final conclusions:•   ‘DfT’s and HS2 Ltd’s attempt to reset the programme since 2020 has not succeeded and further action is now required to develop an affordable and viable station•   ‘DfT and HS2 Ltd have been working to reach an affordable solution since 2015, ….. However, they have not been able to develop an affordable scope that is integrated with other activity at Euston and a further reset is required•   ‘A successful reset will need DfT and HS2 Ltd to have a clear understanding of the costs, risks and benefits of their chosen design for the HS2 station within the wider Euston programme, supported by a realistic budget, clear and effective governance and integration arrangements, and long-term certainty on the scope of the project.

And crucially: •   ‘DfT and HS2 Ltd cannot yet demonstrate that the conditions are in place to secure value for money.’

End noteIf this was an Audit Scotland report into a major infrastructure project of the Scottish Government, we can be sure the judgement of newsworthiness by the BBC and others would be quite different! Opposition politicians would be gleeful in their rush to ‘hold government to account’.

The work of the NAO is relevant to voters and taxpayers in Scotland. The cost of the HS2 Euston station and the rest of the HS2 programme will, one way or another, involve public spending attributed by HM Treasury to the use of UK tax revenues and to UK government borrowings. It will impact the public finances of Scotland whilst we remain within the UK, both directly and also in terms of opportunity costs. And to what and to whose benefit?