HS2 needs multi-year funding settlements in future spending reviews to avoid higher costs, a new report from the National Audit Office has recommended.
The report also calls for the Department for Transport and HS2 Ltd to be clear on what benefits they want the programme to achieve following the cancellation of the second phase of the high-speed rail project, and to agree a realistic budget to deliver them.
The watchdog assessed how the department and HS2 Ltd have responded to the changes to the programme made by then-prime minister Rishi Sunak in October.
It found that the DfT and HS2 Ltd “quickly identified which parts of their phase one plans they needed to assess following the cancellation of phase two to avoid costs that had become unnecessary”.
But it said the DfT “is not yet clear how it will maximise the benefits of the new scope and how it will achieve them” and that it will need to work with other government departments, local authorities and businesses to develop a shared vision for what the revised programme now intends to achieve.
The DfT told the NAO that it aims to update the planned benefits and how it will achieve these as it updates HS2's business case in 2024.
Cancelling phase two has incurred £692m of costs, according to the report. Scrapping the Northern leg will take three years and cost £100m, while £592m has already been spent on land and property that is no longer needed.
The report also found that some phase one infrastructure work will be completed even though it is no longer required, as it would have cost more to stop or change those plans. For example, seven platforms have been built at Birmingham Curzon Street Station despite only three now being needed because stopping construction would have been more costly.
The NAO also found that the latest version of the programme will not address capacity issues on the West Coast Main Line – one of the core aims of the project.
Under the revised scheme, HS2 services that run north of Birmingham will have fewer seats than existing services and HS2 Ltd has estimated there could be a 17% reduction in capacity between Manchester and Birmingham, according to the report.
The NAO said the DfT could consider “managing demand for the service” by “incentivising people to travel at different times or to not travel by rail”. Another option would be to increase the size of platforms to allow for longer trains or to add new tracks, the watchdog said.
Department for Transport permanent secretary Dame Bernadette Kelly acknowledged in October that the pared-back plans for the HS2 rail network represent “poor value for money”.
In September 2023, HS2 Ltd estimated that the forecast cost of main civil construction work alone had increased by £6bn (2019 prices) since 2020.
Before Sunak’s decision in October to scrap phase two, HS2 Ltd estimated that the total costs of phase one would be £49-£57bn, while DfT estimated costs of £45-54bn, both above the current funding envelope of £44.6bn (all 2019 prices). The NAO said HS2 Ltd has since identified cost pressures which will increase its estimated range further.
The report says the Treasury agreeing multi-year funding settlements with the Department for Transport and HS2 Ltd for the programme would “provide them with the longer-term certainty needed to plan activity, manage the supply chain and avoid higher costs”.
It says the HS2 programme is now smaller but “remains by any measure an extremely large and complex endeavour” and urges the DfT and HS2 Ltd to "take the time needed to properly reset, and set themselves up to deliver value for money from the programme".
Transport secretary Louise Haigh said: "We are reviewing this report’s findings, alongside the position we have inherited on HS2 and wider transport infrastructure and will set out next steps in due course.
“Transport is an essential part of our mission to rebuild Britain – and we're committed to delivering infrastructure that works for the whole country."
Labour has said it has "no plans" to ressurect phase two of the programme. Its manifesto made no mention of HS2 but stated that improving rail connectivity would be one of the priorities in its planned ten-year infrastructure strategy.
A spokesperson for HS2 Ltd said: “This is a project of unprecedented scale and complexity and the cancellation of phase two has increased our cost challenges.
“We are now making sweeping reforms to control costs better and deliver the next stage of the programme – passing peak construction between London and the West Midlands and starting the transition to a working railway.”