HS2 costs exceed funding - but savings could go below budget

The costs of constructing Phase 1 of High Speed 2 - currently standing at £27.38 billion - exceed available funding by £204 million, according to the National Audit Office’s Progress with preparations for High Speed 2 report released on June 28. However, if all predicted cost savings are made, Phase 1 could come in £346m under budget, including contingency.

The NAO’s figures, which include rolling stock, assume that the Department for Transport (DfT) and HS2 Ltd secure cost savings of £1.47bn. These cost savings include value engineering to find more efficient designs that reduce the amount of work required without affecting benefits, and implementing more efficient ways of working such as introducing a building information management system.

HS2 Ltd has identified further opportunities for additional savings of around £550m, although the NAO acknowledges that there are “not yet firm plans for how these savings will be achieved”.

Should all of those savings be made, HS2 Phase 1 could be £346m under budget. Without the estimated £6.58bn contingency requirement, the estimated cost of Phase 1 is £20.8bn. The total available funding agreed in the 2015 spending review is £27.18bn.

The NAO found that the ‘point estimate’ for the costs of Phase 1 have increased by £620m since the November 2015 spending review. It says the most significant aspect of this increase is a 220% rise in the estimated cost of compensating Network Rail and train operators for reduced revenue and performance while HS2 Ltd carries out work on sections of the network.

Other changes in estimated costs are the result of more detailed planning, such as an increase of 12% in the estimated cost of building the stations. HS2 has partially accommodated this by reducing the amount of contingency available to manage further risk to the programme. 

• For more on this, read RAIL 804, published on July 6.