Department For Transport
Overview
I am reporting continued progress on High Speed Two (HS2) in this, the governments fifth update to Parliament.
Phase 1 (West Midlands to London) remains within the budget and schedule range, is hitting construction milestones, has made progress on key procurements and is supporting more jobs and apprenticeships than ever before.
HS2 Ltd are progressing key activities for phase 2a to support the next stage of delivery, and since the last report the phase 2b Western Leg Bill had its second reading in June 2022 and is progressing through the legislative stages.
This report shows how, at this important time, we are continuing to grow the economy and bring communities together across the North of England, Midlands and the South.
Key achievements in this reporting period (February to August 2022 inclusive) are:
- HS2 has now over 350 active sites between West Midlands and London, since 2017 over 950 apprentices have been recruited and as of September over 29,000 jobs are being supported.
- Laing ORourke Delivery Limited has been awarded the contract for the construction of HS2 Interchange Station at Solihull worth up to 370 million (in 2022 prices). The contract will involve the finalisation of the detailed design and the subsequent construction of the station.
- Dorothy became the first tunnel boring machine (TBM) to complete its first bore and is now preparing for the second parallel tunnel. The 1-mile tunnel preserves the ancient woodland above at Long Itchington Wood. Four TBMs have now been launched on phase 1 and driven a total distance of approximately 8.4 miles.
- in May the Canterbury Road Vent Shaft became the first diesel-free work site on the HS2 programme. This is a significant step towards the projects aim to be net-zero carbon from 2035.
- the phase 2b Western Leg hybrid Bill secured its second reading in the House of Commons by 205 votes to 6 and the First Additional Provision (AP1) was deposited in July.
The report uses data provided by HS2 Ltd to the HS2 Ministerial Task Force for phases 1 and 2a and covers the period between February 2022 and August 2022 inclusive. Unless stated, all figures are presented in 2019 prices.
Programme update
Schedule
On phase 1 (London to West Midlands), delivery continues to accelerate towards peak construction next year. The forecast for initial services from Birmingham to Old Oak Common remains within the range of 2029 to 2033, with HS2 Ltd currently reviewing its detailed construction and systems installation schedules to address some pressures within this range.
Phase 2a (West Midlands to Crewe) remains on track to be delivered between 2030 and 2034. Land possessions and enabling works are underway. The next stage is to appoint the design and delivery partner who will oversee the construction phase, award the advanced civil works contracts and will begin the early stages of procuring the main works capacity.
On phase 2b Western Leg (Crewe to Manchester), the delivery into service date range remains 2035 to 2041 as provided in the strategic outline business case (SOBC).
Affordability
The approximate cost range for the elements of the scheme committed to by the government for phases 1, 2a, 2b Western Leg is 53 billion - 71 billion (in 2019 prices). This range does not include HS2 East which is at early stage of development and cost estimates are subject to further work from HS2 Ltd and Network Rail.
Phase 1 remains within its overall budget of 44.6 billion, which includes contingency held respectively by HS2 Ltd and by the government. The previous HS2 minister noted in his last report to Parliament his concern at the steady increase in cost pressures on phase 1 reported alongside drawdowns in contingency.
In accordance with the arrangements in its development agreement with the department HS2 Ltd has indicated that, if unmitigated, the final delivery cost is likely to exceed its target cost of 40.3 billion based upon its forecast of future spending. As a result, in September, the department commissioned HS2 Ltd to develop and implement actions to bring projected costs back in line with the target cost.
To date, out of the phase 1 target cost of 40.3 billion, 18.3 billion has been spent, with an additional 1 billion for land and property provisions. 10.6 billion has been contracted and has not been spent. The remaining amount is not yet under contract. The target cost does not include government-held contingency.
HS2 Ltd has drawn 1.5 billion of its 5.6 billion delegated contingency for phase 1, an increase of 0.2 billion since the last update, leaving about 4 billion.
HS2 Ltd is projecting around 1.9 billion of net additional cost pressures on phase 1, an increase of about 0.2 billion since March.
Of the 1.9 billion, the key pressures are:
- An estimated 1.1 billion (increase of 0.3 billion since the last update) for potential additional main works civils costs stemming largely from lower than planned productivity and additional design costs.
- A pressure of 0.4 billion on the cost estimate for the HS2 Euston Station. The move to a smaller, less complex 10-platform single-stage delivery strategy at Euston, as confirmed in my predecessors report, is now the basis for ongoing design work and other activities. The department anticipates that this will assist in addressing some of the cost pressure at Euston as the updated station design is developed over the coming months. This work will also consider and address the appropriate level of contingency that should be held to manage risks that are likely to arise during the construction of an asset of this complexity. I will provide further updates as this work progresses over the course of the next 18 months.
- A pressure of 0.3 billion (increase of 0.1 billion since the last update) against HS2 Ltds budget for changes to Network Rail infrastructure at Euston and Old Oak Common that are required to operate the new HS2 stations.
- A further 0.1 billion of net cost pressures presenting on other parts of the programme. This is the aggregate total of smaller potential cost pressures.
0.8 billion of net savings and efficiencies have been identified within phase 1. These principally consist of savings across the main works civils portfolio and savings in the acquisition and resale of land and property. These have partly offset gross cost pressures resulting in the net figure above.
On COVID-19 costs, HS2 Ltds assessment of the likely financial impact of the pandemic on delivering phase 1 remains estimated within the range of 0.4 billion to 0.7 billion. Further claims are subject to detailed scrutiny by the government and will only be allocated against contingency once this assessment has been finalised. Further detailed claims are currently under review by HS2 Ltd and further updates will be provided in future Parliamentary reports.
Following confirmation of the move to the more efficient 10-platform station design and single-stage build at Euston Station, significant elements of the design work on the original 11-platform station can no longer be used. As the cost of this earlier design work has ceased to be of future benefit to HS2 Ltd, the related costs were reported as an impairment in HS2 Ltds published annual report and accounts for 2021/22.
The phase 2a budget remains unchanged, with a cost range of 5.2 billion to 7.2 billion. The government intends to set a target cost alongside publication of the full business case.
On phase 2b Western Leg the financial case of the SOBC published in January 2022 presented an estimated cost range of 15 billion to 22 billion. Removal of the Golborne Link from the scope of the phase 2b Western Leg Bill scheme has reduced the overall estimated cost range to 13 billion to 19 billion.
Consistent with the rest of the economy, the HS2 programme is experiencing high levels of inflation. HS2 Ltd is working with its suppliers actively to mitigate inflationary cost increases.
The Department for Business, Energy & Industrial Strategy and Office for National Statistics September construction update showed that construction materials across all work in the UK have experienced inflation of 18% from August 2021 to August 2022. Whilst inflation is not affecting the overall affordability of HS2 in real terms because the total budgets and cost estimates for each phase a