The £70bn price tag for Britain’s beleaguered High-Speed Rail 2 project is set to be revised upwards to account for inflation within months to a figure closer to £91bn, according to calculations by the Financial Times.
The expected rise in the headline figure comes as UK prime minister Rishi Sunak and chancellor Jeremy Hunt are considering further major cuts to HS2 to bring down the ballooning cost of the project.
HS2 was meant to speed passengers between London and northern cities including Manchester. But now ministers and officials are refusing to guarantee the line will be built beyond Birmingham, undermining the most visible symbol of the government’s pledge to “level up” Britain’s regions.
Sunak’s review of the scheme follows more than a decade of budget overruns, time delays, contract fiascos and management failings. An internal report last year found HS2 was struggling to control costs on the London-to-Birmingham initial phase on which construction started in 2020.
At the heart of Sunak’s dilemma is a question that has always dogged HS2: would the tens of billions of pounds of future spending be better spent on smaller capital projects — for example electric car charging infrastructure?
“Rishi is someone who is very money-focused and I don’t think he is remotely happy with the amount being spent on the project for the return,” said one close ally.
In June rail minister Huw Merriman announced several further delays to the programme, including pausing indefinitely the redevelopment of Euston station, where there is still no finalised plan. At the time he said HS2 was costed in 2019 values and that the Treasury would update the price to account for “significant inflation”.
Treasury officials say the complex calculation may not be completed until before the next spending round, expected next year.
The latest HS2 estimate for the project in 2019 prices is £53bn to £72bn. Applying inflation to the project pushes the overall price tag up to a range of £67bn to £91bn, in current prices, according to FT calculations based on the Office for National Statistics’ construction output price indices.
One person familiar with the process said the FT’s estimate was “not unreasonable” as a ballpark figure. But they cautioned that applying a single indice to the headline figure did not account for the differing inflation pressures on HS2’s various input costs.
An HS2 spokesman said the organisation was carrying out a “detailed assessment” of inflation, the impact of the Covid-19 pandemic and the rephasing of parts of the project.
“This is a hugely complex, cross-sector project with a significant lifespan. As such it is subject to thousands of variables and using a single measure of inflation to calculate costs is not sufficient,” the spokesman said.
The likely increase in costs will put further pressure on British politicians over the project. HS2 was initially envisaged as a high speed rail-link that would hurtle from Edinburgh to London and onwards to Paris and the rest of Europe. But the project was scaled back even before the Labour government approved it in 2010. Instead Labour ministers promised a Y-shaped route from London to Birmingham, and on to Manchester and Leeds, at a cost of around £30bn.
Since then scope changes, unforeseen complications with ground conditions, a miscalculation of land values and over-optimistic assumptions have pushed up the price, according to a 2020 National Audit Office report. In 2021, former prime minister Boris Johnson axed most of the eastern leg to Leeds.
Tony Travers, professor of politics at the London School of Economics, said that if Sunak now cut the leg from Birmingham to Manchester, HS2 would “feature in the history books alongside other great management failures such as Concorde and the NHS IT programme.”
This summer, with the Infrastructure and Projects Authority warning the project “appears to be unachievable”, Merriman announced the two-year delay to the Crewe-Birmingham link and the pause at Euston station despite demolition that has razed businesses and homes to the ground and left the area a building site.
Now Sunak is not only considering axing the northern phase of the line but is also considering making its London terminus an obscure and little known station at Old Oak Common to the west of the capital.
The proposal to cut the scheme in half was revealed last week by a photographer who spotted a document carried into a meeting by a senior official. Since then the Conservative government has been non-committal.
The opposition Labour party is also prevaricating. Pat McFadden, Labour’s election co-ordinator, signalled on Sunday that if the government pulls the plug his party would rethink its own support for the scheme.
But the prospect of HS2 ending at Birmingham has provoked an outcry from some northern politicians and business, who argue that the extension of the line from Birmingham to Manchester is essential to the government’s “levelling up” ambitions and to the “Northern Powerhouse Rail” project — an east-west line from Liverpool to Leeds via Manchester.
“Why are the Government giving up on the north?” said Christian Wakeford, Labour MP for Bury South. Iain Stewart, Conservative chair of the transport select committee, said a shrunken HS2 line would mean “communities [had] been enormously impacted for no great benefit.”
But not everyone agrees. Support for the project has been consistently low with around 36 per cent of the population opposed to HS2 versus just 26 per cent in favour, according to YouGov polls. Many locals along the route are furious at the disruption and environmental damage.
Meanwhile the supposed economic benefits of the scheme remain in question. In 2021, the Treasury’s own business case ratio said the London-Birmingham line was rated “low value for money” while the longer Y-shaped route was deemed “low-to-medium” value for money.
Alexander Jan, an economist and adviser to rail schemes, said the project is casting an “ever greater shadow over public expenditure”.
“If metro mayors were given a genuine choice between HS2 and say half its cost — let’s say £50bn, to be spent on their priorities, such as trams, subways maybe even some roads, it is very hard to imagine they would have gone with HS2.”
Source: Economy - ft.com
