Transparency data

High Speed 2 (HS2) Phase One Notice-to-Proceed: accounting officer assessment (April 2020)

Updated 27 November 2023

Background

Full construction works for HS2 Phase One will now begin following government’s approval of Notice-to-Proceed for the main works civils contracts. Given the scale of the Notice-to-Proceed decision, it is appropriate that it marks the effective go/no-go decision point for Phase One and the point at which the full business case (FBC) is considered and approved (the FBC will be made available to the public shortly).

To facilitate Notice-to-Proceed, and in parallel with approval of the FBC, it is also a requirement that a further accounting officer assessment is completed, in order to demonstrate the ongoing compliance of the programme with HM Treasury (HMT)’s managing public money guidance.

This assessment has been made at a time of significant economic disruption owing to the widespread outbreak of coronavirus (COVID-19).

It is certain there will be a short-term impact from the inability to mobilise on-site construction works in line with the current schedule. However, it is agreed by the government and HS2 Ltd that any remedial action to address this delay is best dealt with in-flight and once the impact subsides.

This approach:

• maintains the government’s commitment to the programme
• demonstrates confidence to the supply chain at a time of fragility for the construction industry
• provides the best possible conditions for maintaining the existing schedule as closely as possible

This assessment follows four previous assessments undertaken at regular intervals in 2019 during development of the FBC and in response to cost pressures against the previous funding regime.

Feasibility

The government and HS2 Ltd have agreed a revised funding regime to manage the programme going forwards. The new funding regime is predicated on a cost estimate of £35 to 45 billion (2019 prices) and a target for delivery-into-service of Birmingham Curzon Street to London Old Oak Common of 2029 to 2033.

HMT has now approved the revised funding regime, which is predicated on a new baseline cost and schedule estimate for the programme. This new baseline is significantly more mature than previous cost and schedule estimates, and represents the first time a bottom-up estimate has been completed using market prices.

Technical deliverability of the scheme continues to be better understood as baseline maturity increases and scheme design improves.

Value for money

As the FBC will set out, the government has carefully considered the merits and disadvantages of proceeding with HS2 and has concluded that overall HS2 represents value for the taxpayer.

The 2 strategic case provides clear evidence that HS2 offers the only viable long-term solution to overcrowding on the rail network transport and will be a major contributor to the objective of levelling up the economy. The economic case demonstrates that HS2 offers value for the taxpayer under all but the most extreme scenarios.

The business case also recognises that the economic case does not fully quantify all the benefits set out in the strategic case, such as the transformative benefits from changes in business location decisions.

The remaining three cases make up the investment proposition and are important in providing a framework within which the project can be successfully delivered,

As the FBC demonstrates, the investment in Phase One has a benefit: cost ratio (BCR) of 1.2:1, including wider economic impacts. While this is assessed as ‘low’ value-for-money, it is important to recognise that Phase One is an enabler to a series of national transport investments including Phase 2a and 2b, Northern Powerhouse Rail and Midlands Connect.

The ‘full Y’ network, on which the FBC is based, comprises all three phases of the scheme and is assessed to deliver ‘low to medium’ value for money with a BCR of 1.5:1, including wider economic impacts.

The decision to proceed in February and the BCR calculations in the FBC pre-date the recent OBR (March 2020) downward revisions to the long-term growth forecast (which excludes impact of COVID-19).

We will assess the cumulative impact of this alongside other modelling assumption changes towards the end of the year, including any effect on long-term demand of COVID-19. Ahead of that, our first-pass assessment is that the OBR (March 2020) impact is likely to fall within the low demand scenario that we have already modelled as part of the current business case.

Propriety

HS2 has recently been reconfirmed as government policy, following a pause during the period of the independent Oakervee review.

As such, and now that the revised funding regime has been approved by HMT, continued investment in HS2 will be deemed proper.

The HS2 Development Agreement and HS2 Ltd framework document provide a comprehensive control framework for managing HS2 Ltd going forwards.

Regularity

There remains legal authority to spend money on HS2.

The two relevant Acts (High Speed Rail (London to West Midlands) Act and High Speed Rail (Preparation) Act) provide a very broad set of powers and there is therefore no uncertainty around having the powers to build and maintain the railway.

Sufficient controls are in place to ensure that HS2 Ltd is exercising those powers with regularity – for example, in relation to undertakings and assurances.

As of 14 April 2020, Public Health England guidance continues to permit on-site construction works to go ahead, where it is safe and appropriate to do so, provided workers adhere to social distancing policies.

A significant amount of expenditure on the programme in the short-term, following Notice-to-Proceed, is for activity that can be undertaken remotely.

Conclusion

As the accounting officers for the scheme, it is appropriate, at the approval point of the Phase One full business case and Notice-to-Proceed, as the effective go/no-go decision point, for us to jointly provide an updated assessment of the value for money and wider accounting officer issues relating to the scheme.

With the government’s commitment to the scheme, and a revised funding regime, the project has been demonstrated to be feasible (deliverable within revised scope or funding parameters and within an agreed revised schedule).

While Phase One as a standalone project represents ‘low’ value for money, it is a step to the full HS2 network that contributes to an overall positive of ‘low to medium’ value-for-money position.

There is also a clear strategic case for the programme that reflects the government’s ambitions to level-up the North and Midlands and it is widely recognised that HS2 is central to facilitating this alongside other reforms.

We are content that the project continues to rely on clear legal powers, and to accord with the generally understood principles of public life.

The propriety of continued spend will be reinforced by regularisation of the governance and contractual framework for delivery that has been agreed by HS2 Ltd and the DfT as part of FBC approvals and in response to the government’s desire to increase transparency and reporting of the programme during delivery with the wider public.

We have considered this assessment in light of the outbreak on COVID-19 and the profound impact on the economy and public life. This is a significant short-term risk to the programme; however, it is a risk throughout the industry and across many projects.

On balance, we agree that proceeding to Notice-to-Proceed will allow as much work as possible to continue, where it is safe and appropriate to do so, and our organisations will be working together to ensure that the long-term impact to the programme is minimised.

Latest assessments indicate that the impacts can be managed within the existing cost and schedule estimates, under a most plausible scenario.

On this basis, we are content that the significant investment in the programme required at Notice-to-Proceed is consistent with official guidance on managing public money.

Permanent Secretary, DfT

CEO, HS2 Ltd

14 April 2020