One of the arguments for building HS2 is that repairing or upgrading an existing operational railway is hard to do. With new-build, the costs are much more predictable.
The reasoning goes something like this: ‘An overnight possession (of an existing railway) might give a working window of only four or five hours to do useful work. The rest of an eight-hour possession might be just spent getting workers, equipment, and materials to the worksite and out again.’
HS2 construction sites would not be ‘live railway’ until a very late stage in the project, so there would be cost advantages:
- work could take place in daytime
- fewer workers would need Personal Track Safety certification.
However, evidence to support these arguments might be charitably described as very thin on the ground.
The 1980s electrification of Britain’s East Coast Main Line — a functioning railway during that process — was completed on time and on budget (and the budget does not appear to have been “reset” during the course of the works). Whereas the Channel Tunnel and the Netherlands’ Betuwe line were not live railways during construction, but both suffered massive cost escalation.
Obviously, the argument against upgrading the West Coast Main Line on the grounds that “nighttime possessions are costly and inefficient” is also an argument against upgrading the Great Western, Midland, and East Coast Main Lines, because nocturnal possessions are routine on those routes.
It is also an argument against railway electrification in general. Diesel trainsets and locos are generally considered to be less reliable and more expensive to maintain. However, with diesels, there is no need to maintain overhead lines. So, in effect, railway electrification trades maintenance in the controlled environment of a depot, for substantially more maintenance on the live railway itself.
It is also worth remembering HS2 construction would require extensive interventions on the existing live railway at numerous points (Euston, Crewe, Meadowhall, Old Oak, etc). And when it was completed, ‘expensive PTS qualified staff’ would be out on HS2 every night, maintaining the track and the overhead line. The likelihood is that a lot of maintenance would be needed, because high speeds mean a great deal of wear and tear.
Perhaps the best way of addressing railway PTS costs would be to get rid of PTS. According to its chief, Mark Carne, Network Rail work accident rates are much higher than those in the oil and gas industry (for example), so PTS doesn’t appear to be particularly effective.
Press coverage of transport secretary Patrick McLoughlin’s electrification “pause” focused on the effects on the Midland and Transpennine North routes. However, the ‘Electric spine’ project must also be ‘in pause’ — since that depends on the Midland.
What effects the ‘pause’ will have on the wider railway, remain to be seen.
Despite Britain’s “obvious problems” with capacity issues across the rail network, the public does not make the connection between what they experience on a daily basis and how proposed projects such as HS2 can alleviate them, said HS2 chairman David Higgins at a London business conference.
[Understanding the Benefits and Costs of World-Class High-Speed Rail, Lucy Scott, Urban Land, June 29, 2015] “They don’t see the connection. In other words, we have failed to spell out the benefits to go alongside their perception of the costs. We have failed to answer the fundamental question: why,” he told [the Urban Land Institute Real Estate Trends Conference] 2015 in London recently.
Leicester’s city mayor Peter Soulsby has called on the government to get its priorities right and scrap plans for HS2 and continue with its planned investment in the Midland Mainline, the Leicester Mercury reported.
[Sidelining of £800m rail electrification labelled catastrophic by Leicestershire councils, Leicester Mercury, June 25, 2015]
[Peter Soulsby:] “It would reduce journey times, increase capacity and take polluting diesel trains out of the hearts of our cities. Paying for it would cost comparatively small change, and if the government can’t control the relatively small costs of electrification, how can we have any confidence it its ability to control the estimated £42 billion cost of HS2?”
Nick Rushton, Leader of Leicestershire County Council said: “The investment in the Midland Mainline would have a major, positive impact on Leicestershire, for a much lower cost. With HS2 it is all pain, for no gain. It’s a bloody stupid decision.”
With government policy focused on “protéger l’éléphant”, there would seem to be little chance of reviving the Midland electrification, unless Yorkshire and East Midlands councils came together to make a coherent case for stopping the diversion of resources from the classic network to HS2.
But there seems little chance of that happening; in South Yorkshire, councils remain preoccupied with bickering about where to locate the HS2 station, rather than the existing railway.
While modernisation of the Midland is a much better prospect than HS2, there is a need for analysis and re-scoping to make the investment work better. Connections into the West Coast Main Line at Watford and Northampton would vastly improve the network value of the Midland route, and bolster the case for investment.
On the same day that transport secretary Patrick McLoughlin announced the ‘big electrification pause’, the government also released the MPA project assessment review reports of the HS2 scheme from 2011 and 2012.
[HS2: Major Projects Authority project assessment review reports, gov.uk, 25 Jun 2015]
In March 2015 the Supreme Court handed down its judgement in the Evans case, which limited considerably the circumstances in which the FOI veto can be exercised. The government had previously used the veto to withhold a MPA report on the HS2 project. That decision was judicially reviewed.
[Extract from 2012 MPA report]
At the time of the Secretary of State’s announcement in 10 January 2012 the estimate of capital costs for phase 1 was £16,280 million (in Q2 2011 prices), comprising:
a point estimate of costs of £9,674 million
a combined contingency and optimism bias of £6,606 million (or 64%)
within this was an assumption that costs would be brought in at £500 million less than benchmark industry norms (i.e. there was a half billion cost saving challenge).
At that time the confidence level that the project would be brought in within that overall cost envelope (and assuming the £500 million cost saving was realised) was P50 (i.e. 50%). Since then HS2 have taken on their development partner CH2M Hill who have undertaken a high level (still desk top) baselining exercise. The result of this was to increase the point estimate of costs by £315 million to £9,989 million (50% of which is attributable to the need for a more appropriate rate for station inflation and the rest to revisions to pricing of roads, property, and the relocation of a station). In addition, as a result of work done by IUK and others the baselining exercise identified that within the £9,989m HS2 Ltd had assumed efficiencies savings of approximately £1.5bn (15%) over UK norms, in line with Government targets. HS2 cost challenge has been increased from £500 million to £1.5bn (assuming that costs can be brought in 15% under industry norms).
HS2’s revised estimate has kept the overall envelope at £16,28 billion. As a result of the increase in the point estimate the amount of contingency in the overall £16.28bn estimate has reduced from £6,606m (68%) to £6.289m (63%).
The DfT guidance relating to contingency and optimism bias suggests that to have P80 confidence in an estimate, for a project at this stage of development, a contingency of 57% is required. Therefore, although the contingency has reduced it remains above the P80 level. It should be understood that if the assumption that efficiency savings are achieved is removed then the confidence level in the estimate reduces to circa P50.
It should be noted that the estimates in January and today are still only high level (as is expected at this stage of the programme) based on a concept design and benchmark costs.
Further we are not convinced that there is a clear understanding as between HS2/DfT on the one hand and HMT on the other as to the interpretation of these figures and confidence levels in them. […]
We have seen every indication that HS2 are committed to achieving these cost savings. They have set up a committee to take forward 6 work streams designed to drive out these efficiencies. The details of the savings are not yet developed and they represent a significant challenge for the project. Since achievement of these savings will require some real movement to current market norms, it will be necessary for other parts of Government and Industry to throw their weight behind this initiative for it to succeed. HS2/DfT do not believe they can achieve it on their own.
Recommendation: DfT consider the governance and resourcing of their cost challenge and consider, with their stakeholders, a strategy to ensure the cost challenge is shared across wider Government. Overall we conclude that HS2 have conducted a reasonable costing exercise for a project at this stage in its development. The unusual feature of these figures however is the £1.5 billion cost challenge and when this is factored into account the confidence levels of staying within the overall cost envelope are significantly reduced. Obviously further more detailed work will be done as the design and solution are further developed and this will need ongoing scrutiny.
7.8 Programme Estimate
Our greater concern lies in what has been left out of the above estimate. The £16,280 million figure is in danger of being mistaken for the expected cost of Phase 1 – whereas it is only a partial estimate made in 2011 prices with significant exclusions. Excluded from this figure are a number of items including:
Escalation/inflation costs (figures are at Q2 2011 prices)
Rolling stock costs (estimated at approximately £3 billion for phase 1 – and a further 5 for phase 2)
DfT sponsor costs (and their advisers)
TOC operator costs
Stamp duty on land purchase
Exceptional hardship scheme (blight) costs
Costs of over-site development
Project costs accrued prior to 10 January 2012.
Effectively, the £16.28 billion figure appears to be the estimated costs prepared by HS2 for their part of the project. Grafted onto this needs to come the other costs, prepared by DfT, for the project as a whole, in order to give a complete picture. A detailed “whole of project” cash budget needs to be in circulation, which can then serve as the basis on which affordability discussions can take place. Without it there is a risk that the affordability risk, and the issue of where responsibility for this lies, is not properly addressed.
There is also a risk that public perception of the project will be that it will cost less than is actually expected – which may cause handling issues later in the project life. Parliament will also wish to know if it is affordable. We understand that in the preparation of the Business Case and calculation of the BCR some of the excluded costs above (such as rolling stock) have been estimated and included, but there appears to be no overall current estimate in circulation.
As for capital costs for the whole Y network (phase 1 and 2), we believe that further significant work on this has not been done since last time and the estimated capital cost of this is largely unchanged at £32,670 million (at Q2 2011 prices) including a 66% optimism bias.
Recommendation: that a comprehensive budget for phase 1 of the project be drawn up, including all items currently excluded.
7.9 Budget and Costs for this spending review
There is an overall budget for this project for this spending review of £931,686,000 (RDEL and CDEL for DfT and HS2). This appears to be adequate with no overspends expected. There has been an underspend of £70 million last year on the HS2 budget. The main area of underspend was consultant/contractor spending – and this may be evidence of some slippage in the mobilisation phase of the project. It is not clear if this may put pressure on the budget in future years but this has not been flagged as an expected problem.
Without a comprehensive budget in circulation it is difficult to have fully meaningful discussions on affordability. The Department believes however that the costs of this project are so large, and over such a long period, that it will not be able to afford it alongside all its other likely spending commitments. Accordingly we understand that, prior to the Secretary of State’s announcement in January, high level political commitment was obtained to take the project forward. Quite what this will mean, in terms of any governmental funding/support for the project outside the Department’s own budget and over future periods, is unclear. Engagement on this between the Department and HM Treasury is not easy, and there is some thought that the next spending round may provide the forum for making progress on this. The timing of this is not yet announced –but may be next year. This may not be complete by the time the Bill is presented to Parliament.
There is an assumption that the whole project will be public sector funded (though this is not to rule out possible private sector funding of some aspects in the future – e.g. around station development and, possibly, rolling stock).
The Bill is scheduled to be laid before Parliament in October 2013, and we suggest that some position/understanding and some public statement will be needed for this time – dealing with affordability and how it will be paid for. It is acknowledged however that for a project of this scale and complexity it will not be feasible to have bottomed out this issue at this time, but we believe that by the time of second reading of the hybrid bill it is important that some conclusion has been reached as to the affordability of the project and this will require some level of understanding as to who will pay. We believe however that it is important that some plan or approach is needed for this; without this, this may become a risk without an owner, and it may not be properly managed.
On 25 June transport secretary Patrick McLoughlin announced changes to the governance of Network Rail, and ‘pausing’ of electrification works on Transpennine North and the Midland Main Line.
[House of Commons, Thursday 25 June 2015]
[The Secretary of State for Transport (Mr Patrick McLoughlin):] With permission, Mr Speaker, I wish to make a statement about Network Rail following today’s publication of its annual report.
In September 2014, Network Rail was reclassified as a public body as result of an accounting decision by the Office for National Statistics. Since then the Government have had greater direct oversight of the company. I want to report to the House on Network Rail’s performance and the actions that I am taking to hold it to account.
Some things are working well. Our railways are carrying more passengers than ever before, and journeys have more than doubled since privatisation — they went up on average by 4.2% in the last year alone. Safety has improved, and the reliability of assets on the railways is up. Network Rail reopened the line at Dawlish after the horrendous storms in the time expected. It has opened a new station at Reading ahead of schedule and under budget, and a modernised Birmingham New Street complex will be fully open later this year.
I do not pretend that everything is perfect, however, because it is not. Where performance has fallen below the standards I expect, I want it sorted out. What we saw at Kings Cross at Christmas and at London Bridge earlier this year was unacceptable, and I said so at the time. Since then, Network Rail has demonstrated that it has learned those lessons. I pay tribute to the significant programmes of work it delivered over Easter and the May day bank holidays, but to improve performance we need to invest and we need good management. The truth is that much of this work should have been done decades ago. Successive Governments failed to invest the sums necessary in our rail network, and that is why we find ourselves in the current situation.
When faced with a choice between building the infrastructure our country needs and our railway becoming a brake on growth and opportunity, the Government choose to invest for the future, in projects such as Crossrail in London and HS2. In 2012, the Government set out the most ambitious rail investment programme since the Victorians: a £38 billion programme on enhancing, operating and maintaining the current network. That means hard work and good design; and thousands of people working night after night, sometimes in very difficult conditions. On the 216 miles of the Great Western line alone, Network Rail needs to alter about 170 bridges, lower parts of the track bed, install 14,000 masts of overhead line equipment and electrify parts of the railway constructed by Brunel in the 1830s, so that new British-built fast trains can speed up services and provide more seats and services. Members and their constituents want these improvements, and I am determined that they will happen.
In parts of this programme, Network Rail’s performance has not been good enough. Already, the chief executive and the board are responding. Since joining Network Rail in 2014, the chief executive Mark Carne has reviewed the organisation’s structure, performance and accountability. He has strengthened his team and he has a structure for improvement. I want to see him drive that forward, but there are still challenges. Important aspects of Network Rail’s investment programme are costing more and taking longer: electrification is difficult; the UK supply chain for complex signalling works needs to be stronger; construction rates have been slow; and it has taken longer than expected to obtain planning consents from some local authorities. That is no excuse, however. All those problems could and should have been foreseen by Network Rail, so I want to inform the House of the action I am taking to reset the programme and get it back on track.
First, none of Network Rail’s executive directors will receive a bonus for the past year. The current Chairman, Mr Richard Parry-Jones, is stepping down. His replacement will be the current transport commissioner in London, Sir Peter Hendy, someone of huge experience who helped to keep London moving during the Olympics. I am asking him to develop proposals, by autumn, for how the rail upgrade programme will be carried out. Secondly, I am appointing Richard Brown as a special director of Network Rail with immediate effect. He will update me, and report directly to me, on progress. Thirdly, I intend to simplify Network Rail’s governance by ending the role of the public members. I thank them for their commitment, but the reclassification of Network Rail has changed the organisation’s accountability. Fourthly, it is important that we understand what can be done better in future investment programmes. I have therefore asked Dame Colette Bowe, an experienced economist and regulator, to look at lessons learned and to make recommendations for better investment planning in future. I will publish her report in the autumn.
I know that Members on both sides of the House value the improvements that are planned to the railway in their area. Network Rail’s spending should stay within its funding allowance. Electrification of the Great Western line is a top priority and I want Network Rail to concentrate its efforts on getting that right. On the midland main line, better services can be delivered through works such as speed improvement. Electrification will be paused: I want it to be done and done well; it will be part of our future plans for the route.
Meanwhile, the next franchise for the trans-Pennine route between Leeds and Manchester will bring modern trains and additional capacity. Current work on electrification will be paused, because we need to be much more ambitious for that route, building a powerhouse for the north with a fast, high capacity trans-Pennine electric route. We are working with businesses and cities in the north to make that happen. We have seen electric trains introduced this year between Liverpool and Manchester, and between Liverpool and Wigan, and the work that will see them spread to Bolton and Blackpool is under way.
In the south-east, Crossrail and Thameslink are well under way. In Anglia, we will bring about modern, faster trains to Ipswich and Norwich in the next franchise. For passengers in the south-west, the new contract with First Great Western will provide significant extra capacity. I hope to be able to announce news on further new trains for the region soon.
We will keep commuter rail fares capped in real terms for the whole of this Parliament. People’s earnings will rise more quickly than rail fares—the first time that this has happened since 2002. Passengers want a railway that is better, faster and more reliable than today. Powered by a huge increase in investment and ambition right across the country, that is what they will get. I commend the statement to the House.
[House of Commons, Thursday 25 June 2015]
[Michael Dugher (Barnsley East) (Labour):] I thank the Secretary of State for advance sight of his statement.Let us be absolutely clear: the Government’s total failure to deliver a fit-for-purpose railway has today been completely and damningly exposed. First, the publication of the latest national rail passenger survey — I note the Secretary of State did not mention it—shows that passenger satisfaction has dropped once again. Now we have the Secretary of State announcing that vital investment projects, such as electrification of the midland main line, which he promised to deliver, are being shelved due to his repeated failure to get a grip of Network Rail. The electrification of the trans-Pennine express railway line between Manchester, Leeds and York has also been shelved—so much for the northern powerhouse — and we remain concerned about the future of the electrification of the Great Western line.
The Secretary of State spent the election campaign repeating promises that he knew he would break after the election. That is what has been revealed today. The truth is that passengers have had to endure a catalogue of failure on our railways by Ministers since 2010. There was the Christmas rail chaos, which the Secretary of State referred to, although he neglected to mention that Ministers had been warned about that and failed to act. While delusional Ministers talk about “fair fares” and “comfortable commuting” — which is a world away from the misery for commuters at London Bridge — there have been inflation-busting fare rises of on average more than 20%. We have also seen the collapse of the west coast franchise competition, which cost the taxpayer £50 million. Ministers may try today to shift all the blame to Network Rail, but this happened on the Government’s watch and the responsibility for the mess lays squarely with the Government.
Let me turn to a number of specific questions. Will the Secretary of State confirm that when the Government placed the development of key Network Rail projects on hold for up to two years after the 2010 election, important preparation work was not undertaken, and therefore, as the rail regulator has said, they committed to the projects in 2012 based on “limited development work”? We know that Network Rail started to put together a list of projects that would be axed back in November. Why has it taken so long for the Government to reveal them to the House and to be honest with the travelling public? Crucially, can the Secretary of State confirm that he received a report on 1 September last year on the state of those programmes from Network Rail, his Department and the regulator? He has refused to publish it. Why did he sit on the report and pretend to the public that everything was fine until after the election?
Labour first raised the issue of delays to the Great Western project in the House more than a year ago. Why has it taken so long for the Government to admit that there were fundamental problems with the project? Why did the Secretary of State not listen to the Transport Select Committee six months ago when it warned that key rail enhancement projects had “been announced by Ministers without Network Rail having a clear estimate of what the projects will cost, leading to uncertainty about whether the projects will be delivered on time, or at all”?
Why did he not raise the alarm when the estimated cost of electrifying the midland main line rose from £250 million to £540 million and then to £1.3 billion; or when the cost estimates for Great Western electrification rose from £548 million to £930 million and then to £1.7 billion?
Just two weeks ago, the Secretary of State refused to answer my questions about the need to tackle the failures at Network Rail and whether he was planning changes to Network Rail. Will he explain why he has dithered for so long when he has had the power to exert more ministerial responsibility over Network Rail, including by appointing a special director, since September last year?
The Opposition have warned time and again that fundamental change in how our railways are run is needed, that Ministers need to get a grip, that passengers should have a proper voice and that more public control is needed. We welcome the appointment of Sir Peter Hendy as chairman of Network Rail, and we will look carefully at some of the other announcements that the Government have made.
The news today exposes a catalogue of failure by Ministers, and it deals a fatal blow to the Government’s claim that they are delivering a better railway for passengers. Is it not clear that the Government’s real legacy is one of rail fare hikes, plummeting passenger satisfaction, ongoing disruptions and delays, major projects running years behind schedule, promises of vital investment betrayed, and a railway that is not fit for purpose, and all the while out-of-touch Ministers sat in Whitehall overseeing a complete and utter shambles?
[Mr McLoughlin:] It is true that I have been Transport Secretary for two and a half years. Despite the catalogue of terror that the hon. Gentleman has outlined, over those two and a half years there have been only two occasions on which the Opposition have chosen to debate transport on Opposition days. One was a day after I was appointed, and the other was on the day that the hon. Gentleman’s predecessor was sacked as shadow Transport Secretary. With regard to their warning us and wanting the subject lifted up the political agenda, we have heard nothing from the Opposition, because they are truly embarrassed by their record, whereas we have invested in the railways, lifted them and given encouragement to the railway industry.
Today I have made no cuts whatever to the rail investment strategy — the largest rail investment strategy that has ever taken place. The amount of money invested is exactly the same as it was last week—the budget within which the strategy has to be delivered. I will take no lessons from a Labour party that in 13 years electrified 10 miles of railway lines; we have electrified more this year than it did in all that time. Then there is the £895 million project to rebuild the railways around Reading and to remove major bottlenecks; the £750 million transformation and upgrade of Birmingham New Street station; the refurbishment of Nottingham station, with all the investment going into it. There has been more investment in Nottingham in the last five years than was seen in the 13 years of the last Labour Government. Then there is the new station built at Wakefield; the completed Ipswich Chord and the Doncaster Chord; phase 1 of the £6.5 billion Thameslink project; the completion of Crossrail tunnelling. I could go on a lot more, Mr Speaker. I will take no lectures. I am determined to get on top of, and see the delivery of, those programmes, which are so important for our constituents.
[Northern powercut: has the Tories’ rail revamp reached the end of the line?, Helen Pidd, The Guardian, Thursday 25 June 2015]
[Mr McLoughlin’s] statement to parliament was unclear. He made no promises about the Midlands mainline, but said the government needed to be “much more ambitious” about the TransPennine service. A “fast, high-capacity TransPennine electric route” would be built, he suggested, as part of the “powerhouse for the north”.
It was all a bit vague. No how or when. No firm financial commitment. Just a claim that “We are working with businesses and cities in the north to make that happen.”
[…] Nick Kingsley, managing editor of Railway Gazette, said McLoughlin may actually be making a very sensible decision for the long term.
He said: “Electrification alone doesn’t create much extra capacity. To create the capacity and shorten journey times, really you have to address other, bigger issues, such as adding new track and new signalling. Electrification was never really a gamechanger for connectivity and capacity.
“Obviously we need to see the details, but it may be a wise decision to skip a tricky project, which potentially had limited effect, in favour of one big bang which could deliver the speeds and capacity needed for the future.”
What conclusions might be drawn?
- Great Western wiring has eaten the entire budget for Midland wiring (and then some); no-one really knows why.
- No-one has much idea of what Midland electrification is supposed to achieve.
- Since its announcement in November 2011, no progress has been made in defining what Transpennine rail modernisation should encompass.
- Network Rail remains in a state of extreme dysfunction.