HS2 Under Fire:

HS2 has received its fair share of criticism since the opening stages of the route were finalised in the summer of 2017. Many commentators have taken issue with the projected costs and available funds for the entire project, which currently stand at £55.7bn (including contingency spending), and are sceptical of the government’s ability to deliver the promised trainline – set to be the fastest in Europe – on time and within budget.

More recently, the budget allocated for Phase One of the project, connecting London to Birmingham and the West Midlands, has come under fire. In a letter to the transport secretary, dated March 2018, hereditary Labour life peer Tony Berkeley expressed ‘concern’ over the likelihood of Phase One costs grossly exceeding current projections, and accused the Department for Transport of ‘clinging’ to their 2013 forecast of £24.1bn.

This isn’t the first time HS2’s budget has been attacked. In June 2016 Amyas Morse, the head of the National Audit Office, described present timetables and budgetary schedules as ‘ambitious’ and ‘unrealistic’, and warned that HS2 Ltd – the company responsible for the project – had gravely underestimated the ‘pressures’ of time and cost.

However, Mr Morse’s prediction of the first phase to be over-budget by £204 million stands in stark difference to the warnings forecast by Baron Berkeley, whose letter suggests that the public are being misled about the true cost of Phase One, which could soar to ‘£48bn’; nearly all the public money available for the entire project.

So why the disagreement?

The wild differences in cost estimates are nothing new for public megaprojects of this size and complexity. In a 2014 paper in Project Management Journal, Professor Bent Flyvbjerg, chair of Major Programme Management at Oxford University, laid out what he called the ‘iron law of megaprojects’: that they run ‘over budget, over time, over and over again’.

According to Professor Flyvbjerg, following a study of 258 megaprojects from around the world, nearly 90% of all such projects succumb to this damning law. Even more prevalent in the data, Flyvbjerg claims, is that rail projects are twice as likely to overrun than road or other infrastructure projects.

Who’s to blame?

The number of projects failing to stick to budget isn’t random either. Luminaries in the field, including Flyvbjerg, place most of the blame with public officials. ‘Strategic’ manipulation and deliberate downplaying of potential costs to appeal to stakeholders, attract private partners and suppress opposition groups is believed to occur in nearly all cases, with politicians determined to press forward despite huge sunk costs and questionable future benefits.

Tunnelling and ventilation, bridge and viaduct construction, station improvements and the purchase of land are amongst the largest costs budgeted for in the government’s cost breakdown for Phase One.  Mistakes and unforeseen costs are allowed for in contingency budgeting, making it unlikely that blame for such incidents will be borne by the private contractors responsible for them.

There are, however, plenty of instances of rail megaprojects being built on time and within budget. For example, London’s £14.8bn Crossrail project – connecting Essex in the East to Reading in the West and set to be complete in 2019 – has largely adhered to its funding and timetable projections.

The confidence generated by such success gives proponents of further infrastructure megaprojects justification for their often-immense costs, with such programmes regularly surviving even the toughest of recessions.

What’s next for HS2?

If Phase One’s costs really are to double due to deliberately-understated figures, as the most extreme-case predictions would suggest, then the expected cost-benefit ratio would be greatly diminished. The current government position states that the UK economy will realise ‘£2.50 in benefits’ for every £1 invested in the project, totalling at £103bn overall. This analysis is based on current projections of total expense which, if increased, would harm the direct economic benefits from the project, throwing this much-cited justification for HS2 in to question.

With the first passenger services on this part of line set to begin in 2026, a more realistic reflection of costs might be calculable around that time. But with Phase Two construction set to begin in 2022, four years before the end of Phase One, the budgetary overruns might be impossible to reverse by then.

 

 

1 COMMENT

  1. The noble Lord Berkeley has been trotting out his made-up-on-the-back-of-a-fag-packet “budget” throughout all the parliamentary scrutiny – none of his peers (no pun intended) “bought” his arguments at any stage.

    Given that most of the phase one cavils contracts have been let and are all “under budget” it would rather seem to have shot the noble Lord’s fox.

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