Transparency data

Continuing investment in HS2 Phase 1: accounting officer assessment (October 2023)

Updated 27 November 2023

Background

This statement has been completed following the government’s decision to continue with HS2 Phase 1 from Euston to Birmingham and the West Coast Main Line at Handsacre. The assessment has been made using the information available at this point and there are a number of uncertainties in the quantification of benefits and costs.

Overview

The HS2 programme was originally envisaged as a ‘Y’ network, connecting the centre of London (Euston) with the centres of Birmingham, Manchester and Leeds. The benefit-cost ratio (BCR) was estimated at 1.5 in 2020. Since then a number of changes to the scheme have occurred, including the removal of the Eastern leg to Leeds and the Golborne link. Other changes have also impacted the scheme, including inflation, the increased uncertainty of demand resulting from the impact of COVID-19 and the increased projected cost of Phase 1. 

The government’s intention is to cancel the following elements of the HS2 programme:

• Phase 2a
• Phase 2b Western Leg
• HS2 East

In respect of the HS2 station at Euston, the government intends to progress plans for a developer-led approach with a view to reducing the cost to the taxpayer. The policy intent is to generate savings from HS2 that can be used to rebalance transport investment towards better local and regional connectivity.

Regularity

The funding envelope covers the cost of construction over a decade. The projected cost of Phase 1 is currently expected to exceed the current funding envelope of £44.6 billion (2019 prices) and the Department for Transport (DfT) considers the outturn cost of the current Phase 1 scope should lie within a range of £45 billion to £54 billion. The scope of Phase 1 will now be reviewed to develop a revised cost range for the remaining scope.  Subject to the conclusion of the discussions with HS2 Ltd and HM Treasury on the revised budget for Phase 1 and the current annual cash limits for this financial year and next, Phase 1 is judged to continue to be affordable.  

There is legal authority to continue to spend money on HS2 Phase 1 stemming from the High Speed Rail (London to West Midlands) Act 2017 and the High Speed Rail (Preparation) Act 2013. Sufficient controls are in place to ensure HS2 Ltd will exercise its powers with regularity and to the government bringing forward legislation to amend the HS2 (London to West Midlands) Act where necessary.

Propriety

Phase 1 falls under DfT’s definition of a Tier 1 project and therefore adheres to the control and governance arrangements within HS2 Ltd, DfT and HM Treasure levels. The implementation of the decision to continue with Phase 1 will be progressed using these usual processes. It is also part of the Government Major Project Portfolio (GMPP) and will be subject to Cabinet Office and HMT governance under that framework. Furthermore, the governance of Phase 1 is being strengthened to further increase the focus on cost control and increase government oversight.

Value for money

The value for money assessment has been conducted in accordance with Green Book methodology and Managing public money principles.

It is based on an assessment of continuing with Phase 1, assuming 8 trains per hour, against a counterfactual of stopping all construction at this point in time. Cancellation and remediation costs that would be incurred in the counterfactual of stopping Phase 1 have, therefore, been taken into account and sunk costs have been excluded.

The benefit cost ratio (BCR) for the decision to continue with Phase 1 rather than cancelling it has used a range of demand scenarios and excludes Level 3 economic benefits. 

However, in calculating the BCR, the costs of Euston station have not been removed at this stage until there is greater certainty around a privately funded model, which will determine its treatment in appraisal.   

On this basis, the BCR range for the continuation of Phase 1 between Euston and Birmingham Curzon Street and the West Coast Main Line at Handsacre is 1.1^{[footnote 1]} to 1.8.

In reaching an overall estimate of value for money, the Green Book states that the strategic case for investment should be considered alongside the BCR. While the strategic case envisaged for the ‘Y’ network of rebalancing the economy no longer applies, it is assumed that some wider economic benefits should still accrue by improving connectivity and capacity between Birmingham and London.

Feasibility

The decision to cancel parts of the HS2 programme will require primary legislation and required processes to lift or alter safeguarded land will need to be followed. The decision has been made in compliance with the public sector equality duty. Some contracts will need to be varied to remove scope relating to the line north of Birmingham to the junction with Phase 2a and work on other phases. The alternative vision set out by government for Euston, including the model with private sector funding for the HS2 station, is subject to further work and business case.

Conclusion

I can confirm that, in my judgement, completing the delivery of HS2 between Euston and Birmingham, including Handsacre, meets the value for money requirements of Managing Public Money. The tests of regularity, propriety and feasibility are also met.

1. This figure was previously published as 1.2. However, following further assurance, it has been revised to 1.1. ↩