Under severe strain

In June 2016, the estimated cost of delivering HS2 phase 1 including rolling stock (£27,384 million in 2015 prices) “exceeds the available funding by £204 million”, according to a National Audit Office report published on 28 June. According to Meg Hillier MP, chair of the House of Commons Public Accounts Committee, “preparations to deliver High Speed 2 are under severe strain”.

[Progress with preparations
for High Speed 2, NAO, 2016-06-28]

[…] This estimate assumes, that the Department and HS2 Ltd secure cost saving of £1,470 million (Figure 6 overleaf). The Department and HS2 Ltd have agreed a plan for how it will secure £1,470 million of savings in phase 1. This includes:

• value engineering (finding more efficient designs that reduce the amount of work required without affecting benefits); and

• implementing more efficient ways of working, such as implementing a building
information management system (BIM), which is a standard process on all
government construction projects, designed to make design and construction
more efficient.

The report did not address the effects and risks of Great Britain leaving the European Union, and it would appear that the NAO considered it a zero probability event. In the non-binding referendum that took place on 23 June 2016, 51.9% of votes were for Brexit. The value of sterling fell after the referendum result became known.

Although presented as a ‘British’ project, HS2 would be largely built with imported materials, equipment, and labour, so forex risks from Brexit could be significant. If there were a ‘tariff war’ and restrictions on foreign labour, there could easily be a cost uplift of £10 billion or more.

On 9 June the Yorkshire Post reported that Brexit would be a “threat to HS2 and HS3 in Yorkshire, says [prime minister David] Cameron”. In the event, the ‘Out’ vote share was 59.2% in the West Midlands, 57.7% in Yorkshire and the Humber, 58.5% in the East Midlands, and 53.7% in the North West.

On 28 June, it was reported that plans for a HS2 station at Meadowhall would be dropped. It seems likely that in a revised plan, Sheffield Midland station would be served by ‘classic compatible’ trains which would leave the HS2 track near Toton.

How much of a surprise is all this? The Beleben blogpost ‘HS2 de-scope options‘ (25 September 2014) noted that “Although the cost of HS2 is supposed to include plenty of contingency, it seems increasingly unlikely that the Y network could be implemented for “£50.1 billion at 2011 prices””, and mentioned the possibility of a classic tie-in near Toton.