HS2: Was the UK Parliament misled about costs?
Analysis and timeline of advice given to Parliament by Government and the Civil Service about the costs and benefits of HS2 Phase 2a.
[This article was revised on 29th September. The original calculations omitted construction price inflation included in the Phase 1 Economic case. This has reduced the Benefit Cost Ratio and Value for Money category compared to the original publication.]
Overview
High Speed 2 (HS2) is a major project to construct a new UK railway. It is described as the largest construction project in Europe and represents a massive investment of taxpayer’s money. HS2 Phase 2a is one part of the project, constructing a route that connects Birmingham and Crewe.
To build the railway the Government must get a ‘Bill’ approved by the House of Commons and the House of Lords. This gives the Government the powers necessary to undertake the construction, including the compulsory purchase of land and property. The costs, benefits and overall Value for Money (VfM) of the scheme are important considerations for decisions made by Parliament. For this they rely on analyses from HS2 and the Department of Transport.
Timeline
In July 2017, the ‘Phase 2A Hybrid Bill’ was submitted to Parliament, this included a range of supporting documents including an ‘Economic Case’.
The Economic Case calculated a Benefits to Cost Ratio (BCR) of 1.9. Meaning that for each £1 of taxpayer funds invested, £1.90 of ‘monetised’ benefits will be realised (monetisation coverts benefits such as reduced journey times into a financial value). Projects with BCRs between 1.5 and 2.0 are classified as being ‘Medium’ value for money. On this calculation Phase 2a was nearly in the ‘High’ category.
The Phase 2a BCR was calculated based on construction costs of £4billion (four thousand million pounds). Although Phase 2a is the smallest of the HS2 phases this is still a very large project. The £4bn was from on an estimating exercise undertaken in 2015. An estimate which was later validated at £3.8bn by HS2 in the ‘Chairmans Stocktake’ report of August 2019 (a slight reduction because some works that were due to undertaken by Phase 2a were transferred to the later Phase 2b).
The Phase 2a Hybrid Bill was voted on in the House of Commons in July 2019, with MPs voting 263 ‘for’ and 17 ‘against’.
The ‘Oakervee Review’ was commissioned by Boris Johnson and published in February 2020. The review was described as an independent assessment that would support the final decision by Government on whether to proceed. The Phase 2a estimate of £3.8bn was confirmed and it was recommended that HS2 should proceed in full. Douglas Oakervee had previously been Chairman of HS2.
In October 2020, the Government published it’s first ‘6-month’ update to Parliament. Costs for Phase 2A were advised to be £4.5bn to £6.3bn (mid-point £5.4bn, see notes). A more than 40% increase on the numbers published 8 month previously. With the increased costs the I calculate the Benefit Cost Ratio went down from 1.9 to 0.92 and the Value for Money classification went from ‘Medium’ to ‘Poor’.
The following month the Government published ‘Government overview of the case for HS2 Phase 2a and its environmental impacts – Update for the House of Lords’. This update report was a prerequisite for House of Lords decision making. The House of Lords update gave the BCR as 1.9, in other words the ‘update’ was no such thing as it was based on the original 2017 costs instead of those in the recent October ‘update to Parliament’.
In February 2021 the Bill was given ‘Royal Assent’, and became the ‘High Speed Rail (West Midlands – Crewe) Act 2021’, granting the Government the powers necessary to build HS2 Phase 2a.
This sequence of events leads to following questions:
Could the increased cost figures of October 2020 have been provided before the House of Commons vote in July 2019? Why did the cost estimate increase?
Would MPs have voted differently if the October 2020 numbers had been available to them in July 2019?
Would the House of Lords response have been different if the BCR had been given as 0.92 instead of 1.9?
Should our elected representative MPs have another opportunity to vote on the scheme in light of the revised estimates?
There is hope for citizens and taxpayers who believe that Phase 2a should not go ahead. Although the Hybrid Bill gives the Government the powers to build the railway, no major construction contracts have been awarded. An announcement was made on 9th March 2023 that Phase 2a would be delayed by two years (“rephased” in gov-speak). There is still opportunity to reconsider this project.
Notes
The range actually given was £5-7bn in 2019 prices. I have reduced this by 12% to account for inflation between 2015 and 2019. To calculate BCR’s the mid-point of the ranges have been used. If the lower cost forecast rage (£5.2bn) is used the BCR is 1.15 and if the higher cost forecast (£7.2bn) is used the BCR is 0..72 (i.e. benefits are less than costs) with VfM of ‘Poor’.
The most recent update to Parliament was in June 2023. Cost ranges for Phase 2a were at £5bn to £7bn ‘to the nearest billion’ - does this mean £8bn is considered a possibility?
References and Links
HS2 Phase 2A - West Midlands to Crewe - HS2
Government Page for Phase 2A Hybrid Bill - HS2 Phase 2a: High Speed Rail (West Midlands to Crewe) Act 2021 - GOV.UK (www.gov.uk)
Phase 2a Economic Case - https://www.gov.uk/government/publications/hs2-phase-two-economic-case (page 16)
Oakervee Review:
Oakervee Review of HS2 - GOV.UK (www.gov.uk)
HS2 review hit by resignation over 'whitewash' (yahoo.com)
Chairmans Stocktake HS2 Ltd Chairman’s Stocktake, August 2019 - GOV.UK (www.gov.uk)
House of Lords Update - Statement of reasons command paper for the High Speed Rail (West Midlands to Crewe) Bill - GOV.UK (www.gov.uk)
9th March 2023 written Ministerial Statement - Transport Update