The Financial Times calculates that the £70 billion cost of the troubled second phase of Britain’s high-speed rail project will be raised to nearly £91 billion within months to combat inflation.
The overall figure is expected to rise as Prime Minister Rishi Sunak and Chancellor Jeremy Hunt consider further deep cuts to HS2 to reduce the project’s ballooning costs.
HS2 is designed to speed passengers between London and northern cities such as Manchester. But now ministers and officials are refusing to guarantee the line will be built outside Birmingham, undermining the clearest sign of the government’s commitment to “leveling up” Britain’s regions.
Sunak’s review of the scheme follows more than a decade of budget overruns, delays, contract failures and management failures. An internal report last year found HS2 was struggling to contain costs on the first phase of the London to Birmingham project, which starts construction in 2020.
At the heart of Sunak’s dilemma is a question that has dogged HS2: Would the tens of billions of pounds of future spending be better spent on smaller capital projects – such as electric vehicle charging infrastructure?
“Rishi is a very money-conscious person, and I don’t think he’s happy with the return payout on this project,” said a close ally.
In June, Railways Minister Huw Merriman announced further delays to the scheme, including an indefinite pause on the redevelopment of Euston station, which has yet to finalize its plans. At the time he said the cost of HS2 was based on 2019 prices and that the Treasury would update prices to take into account “significant inflation”.
Treasury officials said the complex calculations may not be completed until the next round of spending next year.
HS2’s latest estimate of the project’s 2019 price tag is £53 billion to £72 billion. The overall price tag of the project would rise to between £67 billion and £91 billion at current prices, according to Financial Times calculations based on the Office for National Statistics’ Construction Output Price Index.
One person familiar with the process said the FT estimate was “not unreasonable” as a ballpark figure. But they warned that applying a single index to the overall data would not account for the different inflationary pressures on HS2’s various input costs.
An HS2 spokesman said the organization was conducting a “detailed assessment” of inflation, the impact of the Covid-19 pandemic and the realignment of some projects.
“This is a very complex, cross-departmental project with a long life cycle. Therefore, it is affected by thousands of variables and using a single inflation indicator to calculate costs is insufficient,” the spokesperson said.
The potential increase in costs will put further pressure on UK politicians over the programme. HS2 was originally conceived as a high-speed rail link from Edinburgh to London and on to Paris and the rest of Europe. But the project was scaled back even before it was approved by the Labor government in 2010. Instead, Labor ministers promised to build a Y-shaped route from London to Birmingham and on to Manchester and Leeds at a cost of around £30bn.
Scope changes, unforeseen complexities in ground conditions, miscalculations of land values and overly optimistic assumptions have since driven up prices, according to a 2020 National Audit Office report. In 2021, former Prime Minister Boris Johnson cut much of the eastern route to Leeds.
Tony Travers, professor of politics at the London School of Economics, said if Sunak cut off the route from Birmingham to Manchester now, HS2 would “be added to the list of other major management failures such as Concorde and the NHS IT project” history”.
This summer, Merriman announced a two-year delay on the Crewe-Birmingham link and the suspension of Euston station as the Infrastructure and Projects Authority warned the project “appears unachievable” despite demolition work that has razed businesses and homes. To level the land, the area became a construction site.
Now Sunak is not only considering scrapping the northern section of the line, but also turning its London terminus into a nondescript and little-known station on the Old Oak Common in the west of the capital.
Last week, a photographer spotted a document carried by a senior official to a meeting revealing proposals to cut the program in half. Since then, the Conservative government has been noncommittal.
The opposition Labor Party also prevaricated. Labor’s electoral coordinator Pat McFadden said on Sunday Labor would reconsider its support for the scheme if the government terminated it.
But the prospect of the HS2 finish line in Birmingham has sparked an outcry from some northern politicians and business circles, who see a line extension from Birmingham to Manchester as vital to the government’s “levelling up” ambitions and the Northern Powerhouse Rail project – running from Liverpool East-West Line from Manchester to Leeds.
“Why is the government abandoning the north?” said Christian Wakeford, Labor MP for Bury South. Iain Stewart, the Conservative chairman of the transport select committee, said the cuts to the HS2 line meant “communities have been hugely affected without much benefit.”
But not everyone agrees. Support for the scheme has been low, with around 36% opposed to HS2 and only 26% in support, according to YouGov polls. Many locals along the route are angry about the destruction and environmental damage.
simultaneously assumed Economic benefits Implementation of the plan remains in question. In 2021, the Treasury’s own business case ratios said the London-Birmingham line was rated as “low value for money”, while the longer Y-shaped route was rated as “medium to low value for money”.
Alexander Young, an economist and consultant on the rail plan, said the plan “casts a growing shadow over public spending”.
“It would be difficult if metro mayors could make a real choice between HS2 and spend half its cost, say £50bn, on their priorities such as trams, tubes and even some roads. Imagine they would choose HS2.”
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