UK’s HS2 Is Still ‘Poor Value’ Even After Northern Leg Scrapped

Philip Aldrick
·4 min read
1

(Bloomberg) -- Completing the shortened leg of the UK’s HS2 high speed rail link offers taxpayers “very poor value for money,” while problems with the planned London terminus and how the new trains will run on old tracks have yet to be resolved, the Public Affairs Committee warned.

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Prime Minister Rishi Sunak decided to scale back the roughly £100 billion ($125 billion) project last year after vast budget overruns, axing the northern leg and pledging to use the funds to improve existing transport links in the region instead. Yet even the remaining track may make little financial sense to complete, lawmakers on the cross-party panel from Parliament said.

Pressing on with the “Phase 1” line from London to the West Midlands is only worthwhile if the £23 billion spent to date is excluded, and the £11 billion of remediation costs from cancelling the project entirely are included in the calculation, the committee said. The potential benefits are then still just £1.10 to £1.80 for every £1 spent.

Phase 1 alone fails the financial benchmark when all its costs are included. “The government has accepted that delivering only Phase 1 will not be value for money, as its total costs significantly outweigh its benefits,” the committee said. The Department for Transport justified moving forward on the grounds that doing so is marginally more beneficial for taxpayers than scrapping HS2 entirely.

The government has struggled with the project — originally designed to link London to Manchester and Leeds, via Birmingham — since it was first proposed in 2009. Costs spiralled from an initial estimate for the entire network of £37.5 billion to as much as £98 billion by 2020.

The shortened link from London to Birmingham is now likely to cost £45 billion to £54 billion in 2019 prices, the committee said. But HS2 Ltd., the company running the project, has warned inflation may have added £8 billion to £10 billion since then. The PAC said it had been “left with little assurance over the calculations.” It called for a “clear summation of Phase 1’s benefits.”

The PAC’s finding come as a new report by Boston Consulting Group found that the cost of building road and rail in the UK far exceeds peer countries like France, Germany, Australia and the US.

“Across all forms of infrastructure, the UK faces a worrying combination of high costs and slow delivery,” the report from BCG’s Centre for Growth said. “Unit costs for like for like projects are higher than European peers – on par with US and Australia but delivery times are in line with slower European peers.”

Rail projects in the UK cost £34.3 million per kilometre, almost three times as much as in France and 50% more than the US and Australia. Germany is only slightly better at £31.6 million per kilometer. The UK is particularly slow in getting infrastructure projects off the ground, with 65 months in pre-construction compared with 50 months elsewhere. “Planning is a big part of this,” BCG said.

“The common theme we identify is that the industry – both public and private sector – has become dominated by risk aversion. There is a focus on perceived predictability over efficiency. It has created perverse incentives – no one has the desire or ability to push down costs and time across the project delivery life cycle. Our risk aversion has increased risk and driven up costs.”

HS2 is the biggest infrastructure project on the government’s books. “As such, it was crying out for a steady hand at the tiller from the start,” said Meg Hillier, chair of the PAC. “But, here we are after over a decade of our warnings, locked into the costly completion of a curtailed rump of a project and many unanswered questions and risks still attached to delivery of even this curtailed project.”

As well as the escalating price, the committee pointed out that the new trains will likely be slower when connecting onto on the existing West Coast Mainline “compared to the existing rolling stock” because they are not designed for the old tracks.

The government’s plan for a London terminus at Euston may be undeliverable because the project depends on private finance and the Department for Transport “does not yet have any plan for how to do so,” the PAC said.

Alongside the decision to scrap the northern leg, the government committed to redirect £36 billion of funds into local transport projects in the area. It has yet to say “what will be delivered and when,” the committee said.

In addition, over £600 million has been spent buying land and property along the section of the route that has now been cancelled. The committee wants to know what will be done with the assets.

“What happens now to the Phase 2 land? Can we seriously be actively working towards a situation where our high-speed trains are forced to run slower than existing ones when they hit older track?” Hillier said. “Most importantly, how can the Government now ensure that HS2 deliver the best possible value for the taxpayer?”

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