High Speed 2: update to Parliament, Autumn 2020
Overview
1/ This government has committed to provide an update to Parliament every 6 months on the progress of High Speed 2 (HS2), of which this is the first. This report covers data reported by HS2 Ltd to the end of August 2020. I have placed a copy of the report in the libraries of both houses.
2/ After careful consideration of the independent Oakervee review and wider evidence, including the National Audit Office's (NAO's) progress update, the Prime Minister confirmed to Parliament in February 2020 that the government would proceed with HS2. The government intends HS2 to become the spine of the country's transport network, bringing our biggest cities closer together, boosting productivity and rebalancing the economy and opportunity for people across the country. It will also help meet our commitment to bring all greenhouse gas emissions to net zero by 2050 by providing a better alternative to regional air and road travel.
3/ In taking this decision, the Prime Minister and Secretary of State for Transport made clear the importance of a tighter grip by the government on the delivery of the project and of the need for full transparency. That is why we have consulted the chairs of the Public Accounts Committee and Transport Select Committee in providing this report to Parliament and I intend for it to provide clear information about our progress.
4/ In April (2020), the Full Business Case for the first phase of the scheme between the West Midlands and London, 'HS2 Phase One', was approved with an increased budget and revised delivery into service date. This permitted HS2 Ltd's Main Works Civils Contractors to begin construction of Phase One. I was delighted to see the Prime Minister mark this significant milestone officially by visiting Birmingham Interchange a few weeks ago.
5/ Authorising the Main Works signalled the government's commitment to invest in our economic recovery in response to COVID. HS2 is central to our plans to build back better and will stimulate economic growth and rebalance opportunity across this country in the short, medium and long term.
6/ HS2 Phase One is just the first step in levelling-up our great economic regions and better connecting the north, the Midlands and London. That is why we are progressing legislation to deliver Phase 2a to provide a high speed line from the West Midlands to Crewe, where trains will continue further north via the West Coast Main Line. The Phase 2a Bill is currently in the House of Lords. The select committee has finished hearing petitions and we await its report.
7/ To deliver HS2 Phase 2b and Northern Powerhouse Rail more effectively alongside other transport schemes, an integrated plan for rail in the North and the Midlands is being developed. This will be informed by an assessment from the National Infrastructure Commission, expected at the end of 2020. The integrated rail plan will set out the form, scope and phasing of the Phase 2b route. It will also inform decisions on how to improve links to and from Scotland to strengthen the connectivity of the Union.
8/ Achievements in this first reporting period include:
- getting on with delivery by approving the Phase One Full Business Case and authorising the start of construction, supporting the industry and wider economy as part of the COVID response. Indeed, HS2 Ltd and its supply chain supports over 13,000 jobs, including over 400 apprenticeships. At peak construction, this will increase to 30,000 jobs
- getting a stronger grip on delivery to time and budget by establishing the Ministerial Task Force for Phases One and 2a, chaired by the Secretary of State for Transport, and attended by the Financial Secretary to the Treasury, the Minister of State at the Cabinet Office, the Minister of State for Regional Growth and Local Government and myself. We have also strengthened the Board of HS2 Ltd by appointing three additional Non-Executive Directors.
- putting the people and communities impacted by the scheme at the centre of our work by reviewing the land and property acquisition programme, the approach to compensation and, importantly, how HS2 Ltd supports and engages with people along the route. The review will be published shortly
- revisiting how best to deliver Euston Station as recommended in the Oakervee review, with the aim of providing an improved design and better delivery strategy. This includes revised governance providing closer collaboration between HS2 Ltd and Network Rail, through the new Euston Partnership Board chaired by Sir Peter Hendy
- developing the integrated rail plan for the North and Midlands. This work focuses on reducing overall costs, identifying the correct schemes and sequencing to improve rail services and to determine how best to improve rail connectivity with Scotland. A separate Ministerial Task Force is also overseeing preparation of the integrated rail plan
- continuing the preparation of legislation for the Phase 2b Western Leg into Manchester, reflecting the findings in the Oakervee review that Phase 2b should be delivered in smaller sections with legislation brought forward as it is ready. This includes the Design Refinement Consultation launched on 7 October (2020). The integrated rail plan will set out the form, scope and phasing of the Phase 2b route, across the Western and Eastern Legs, and the government will therefore consider responses to this consultation alongside the outcomes of the integrated rail plan
- setting out our intent to establish enhanced reporting arrangements to demonstrate how HS2 Ltd is meeting the government's environmental priorities
Programme update on affordability, schedule and delivery affordability
9/ Earlier this year, the government reset the funding regime for HS2, including a target cost and funding envelope for Phase One and revised estimates for the wider scheme. The total funding envelope for Phase One was set at £44.6bn (2019 prices) and the estimated cost for completing the full network was revised to a range of £72bn to 98bn.
10/ For Phase One, including Euston, HS2 Ltd projects an outturn cost at £40.3bn (2019 prices) which is at the level of its target cost. This projection remains uncertain at this early stage in the project's lifecycle (as with all major infrastructure projects) and does not yet reflect the impact of COVID. HS2 Ltd is expected to provide its estimate of the COVID impact within the next six months. Any cost changes will be contained within the funding envelope using the contingency already assigned
11/ Of the £40.3bn, £9.6bn has been spent to date, a further £11.5bn is contracted, and £13.9bn is yet to be contracted and remains an HS2 Ltd estimate. The target cost also includes available HS2 Ltd delegated contingency of £5.3bn for managing the risk and uncertainty that are an inherent part of delivering major projects. HS2 Ltd is currently reporting cost pressures of £0.8bn. If not successfully remediated, these pressures will be drawn against the Company's delegated contingency. These pressures are driven by:
- enabling works to prepare the line of route for construction. These have been underway since 2017 and in some areas have encountered more significant challenges than anticipated, such as the need to safely remove more asbestos than expected, resulting in increased scope and duration. These additional costs are likely to be in the order of £0.4bn according to HS2 Ltd
- Euston Station, where further development of the baseline scheme has identified a significant cost pressure, which HS2 Ltd is currently reporting as in the order of £0.4bn. Further work is ongoing to validate these initial estimates and this could identify further pressure. As this remains at the design stage, work is underway to consider opportunities, efficiencies and scope reductions in order to redress these pressures and we will report further on this in the next report
12/ The total funding envelope for Phase One remains at £44.6bn (2019 prices). This includes further available contingency of £4.3bn over and above that delegated to HS2 Ltd, which is retained by the Department for Transport and Her Majesty's Treasury. I am determined to carefully scrutinise the use of contingency to ensure that it is sufficient to cover issues that may emerge later in the project and will provide updates to Parliament through these reports.
13/ The overall Phase 2a cost is currently estimated as in the range of £5-7bn (2019 prices). This remains in line with the estimate set out at the time of the Prime Minister's announcement on 11 February and the NAO update of January 2020. Firmer ranges and a target cost will be confirmed, subject to the scheme being approved by Parliament and based on the scope and undertakings in the act.
14/ Updated cost estimates will be provided for the Phase 2b links to Manchester and Leeds once the integrated rail plan is concluded. At this stage, ongoing design work suggests some further pressure on the most recent estimates but this depends in part on decisions on the route and sequencing, as well as decisions about the appropriate level of contingency to provide at this stage. We will provide
