Progress with preparations for High Speed 2 Contents

1Progress with delivering the programme

1.On the basis of a report by the Comptroller and Auditor General (C&AG) we took evidence from the Department for Transport (the Department) and HS2 Ltd on progress with preparations for High Speed 2.1

2.High Speed 2 is a £55.7 billion programme (at 2015 prices) split into three phases, to create a new high speed rail service from London to Manchester and Leeds, via Birmingham. Phase 1 between London Euston and the West Midlands is due to begin construction in 2017 and open in 2026. Phase 2a, between the West Midlands and Crewe, is expected to open in 2027 with phase 2b, completing the full network to Manchester and Leeds, due to open in 2033. The Department is the sponsor of the programme and HS2 Ltd, a company wholly owned by the Department, is responsible for developing, building and maintaining the railway.2

3.The Department’s objectives for High Speed 2 are to enable economic growth by increasing capacity to meet existing and future rail passenger demand and to improve connectivity between UK towns and cities. The Department also aims to encourage additional investment to promote regeneration, particularly in areas around stations.3

4.Each phase of the programme requires primary legislation in the form of a Hybrid Bill to be passed before authority is granted to construct that section of the railway. In 2013, the previous Committee described the timetable for gaining Royal Assent for phase 1 as ambitious and unrealistic.4 The Department subsequently delayed the target date for achieving Royal Assent by 21 months to December 2016 and are now on course to achieve this.

5.The Department told us that the programme is now on track to start construction next year and for phase 1 to be finished by the end of 2026.5 However, HS2 Ltd is only 60% confident that it will be able to deliver phase 1 by 2026. The Department’s view is that this is too low, and it has asked HS2 Ltd to revisit the programme schedule in order to increase confidence in delivery to 80%, without increasing costs. In doing this, the Department has asked HS2 Ltd to consider the impact of delaying phase 1 by up to 12 months from December 2026 to December 2027. The Department and HS2 Ltd have missed programme milestones since the beginning of the programme and only 15% of ground investigation work has been completed against a target of 26%.6

6.The Department told us that the phase 2 timetable would not be affected if they were to delay opening phase 1 by 12 months. The Department explained that the two timetables were not dependent on each other. Both were more dictated by the legislative process and the funding profile. However, there remain considerable uncertainties about the phase 2 route, such as a decision about the location of a High Speed 2 station in South Yorkshire. The Department plans to announce the phase 2 route this autumn.7 The estimated costs of both phases 1 and 2 currently exceed available funding. On phase 1 the estimated final cost, including contingency provision is £27,384 million, £204 million above available funding. Available contingency for phase 1 currently stands at around 32.5% and the Department has asked HS2 Ltd to restore this level to around 35%.8

7.On phase 2, cost estimates are more volatile. At the time of the 2015 Spending Review, the estimated cost of phase 2 exceeded available funding by £7 billion. The Department told us that it had known enough about potential areas for reducing phase 2 costs at the time of the spending review to decide not to seek an increase in the funding package. Six months later, a review commissioned by the Cabinet Secretary, involving staff from the Department, HS2 Ltd, the Infrastructure and Projects Authority and other government departments, identified potential phase 2 savings totalling around £9 billion.9 Nevertheless, HS2 Ltd explained that, as there was still a lot of work to be done on the phase 2 cost estimates and route design, it would not commit to all £9 billion of savings being realised or that phase 2 would be delivered under budget.10

8.The Department and HS2 Ltd consider that around £2.4 billion of these savings are the result of revised assumptions, based on more mature estimates for phase 1, about the unit costs to build, for example, viaducts and cuttings. In addition, HS2 Ltd told us that High Speed 2 provided an opportunity to address long-standing issues in supply chains for engineering projects in the UK, which are characterised by a lack of integration, with large numbers of suppliers all taking profit. HS2 Ltd told us that, with long-term planning and improved visibility for the supply chain of those plans, there was an opportunity to make savings of around £1.7 billion on phase 2.11

9.The Department and HS2 Ltd expect some of the £9 billion of proposed savings to come from a change to the location of the planned High Speed 2 station in South Yorkshire. In 2013, the Government proposed that South Yorkshire should be served by High Speed 2 stopping at Meadowhall, north of Sheffield. However, on 7 July 2016, HS2 Ltd published a high level report about the route and station options that HS2 Ltd had considered in South Yorkshire. The report recommended a new option that runs as far as possible parallel to the M18. The HS2 service would serve Sheffield Midland station in Sheffield city centre by running high speed ‘classic compatible’ trains, which can operate on both the High Speed 2 network and the existing network. If the recommendation is accepted by ministers, the Department estimates that savings of around £768 million could be realised. The Department expects that a decision about the South Yorkshire station will be made and announced in the autumn, at the time of the announcement of the proposed route of phase 2b.12

10.The new proposed route will affect groups and communities that were not expecting to be affected under the previous plans for the South Yorkshire route. Currently, the scale of disruption and the impact on passengers is yet to be determined. The Department told us that there were a range of regeneration benefits that could be realised under the new proposal but did not provide details of them or a quantification of the benefits. The Department stated that there were no other planned changes of this scale on the rest of the phase 2 route.13

11.In addition to High Speed 2, the Department is overseeing a number of other programmes of investment in transport including Crossrail and the roads investment programme. This level of infrastructure investment means that there is a high demand for engineering, project management and commercial skills across the industry.14 The Department said that it was not completely satisfied with the level of commercial and project management skills that it currently had in grades below the Senior Civil Service. It told us that it had a plan to increase its capability in these areas but it was not clear whether this plan extended to the delivery bodies that it sponsors such as Highways England and Network Rail.15

12.Developing organisational capacity and capability is also a challenge for HS2 Ltd. The company told us that it had increased the proportion of permanent staff from 45% to 70% over the last two years and estimates that this has produced savings of around £10 million in the last year as a result of using fewer consultants. However, HS2 Ltd acknowledged that it faced competition from consulting and engineering firms for scarce skills. There was also a risk that high demand for scarce skills would increase costs.16

13.HS2 Ltd told us that the construction of phase 1 would require around 25,000 people and that the development of skills in the civil engineering industry required for High Speed 2 was particularly challenging because much of the technology required for the programme does not yet exist. To address the skills gaps, HS2 Ltd is planning and engaging the market early to provide clarity about the skills that are required and encourage training.17 HS2 Ltd also told us that its civil engineering contractors would be contractually required to train around 2,000 apprentices in the National College for High Speed Rail, for which campuses were being built in Birmingham and Doncaster. The Department expected the college to train around 900 people a year and that this training would benefit High Speed 2 and other infrastructure projects.18

1 C&AG’s Report, Progress with preparations for High Speed 2, HC 235, Session 2016–17, 28 June 2016

2 C&AG’s Report, para 2

3 C&AG’s Report, paras 1–3 and 1.2

4 Committee of Public Accounts, Twenty-second Report of Session 2013–14, High Speed 2: a review of early programme preparation, HC 478, September 2013, para 5

8 Qq 145; C&AG’s report, para 2.3, 2.11 and figure 6

10 Qq 87; C&AG’s Report, para 2.11

11 Qq 66, 73, 90, 106 and C&AG’s report, para 2.3, 2.11 and figure 6

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12 September 2016