Cost of London-to-Birmingham leg of HS2 jumps by a fifth to £54bn

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The cost of building the London-to-Birmingham stretch of the UK’s HS2 high-speed railway has jumped by a fifth in just four months, underlining the challenges the government still faces in delivering the troubled project.

Last week, Prime Minister Rishi Sunak committed to building the full southern leg of the scheme even as he announced it would no longer run on to Manchester. He claimed the move would save £36bn.

Around the same time, the Department for Transport published figures showing that the upper cost estimate of the London-to-Birmingham leg, in 2019 prices, had risen sharply from £45bn in June to £54bn in October.

In today’s prices, that figure would rise to £68bn, according to calculations by the Financial Times.

This compares with an original budget of just under £33bn for the whole Y-shaped railway, which would have connected London to both Manchester and Leeds via Birmingham, when it was approved in early 2012.

The London-to-Birmingham line, which is still six years away from opening, has been plagued by budget overruns and delays as well as allegations of mismanagement in the decade since work on the railway started.

The state-funded organisation running the project is without a chief executive after Mark Thurston resigned after six years in the job in July. 

Jon Thompson, formerly chief executive of the Financial Reporting Council, has taken over as executive chair for an interim period while a replacement is found.

Professor Stephen Glaister, a transport economist at Imperial College London said: “There is something fundamentally wrong with the governance,” pointing to heavily redacted boardroom minutes and “a persistent lack of transparency”.

The transport department said in a statement that HS2’s “governance [was] being strengthened to further increase the focus on cost control and increase government oversight”.

The i newspaper previously reported the DfT disclosure.

Last week the government stripped HS2’s management of responsibility for rebuilding Euston station, the London terminus of HS2, and one of the most expensive parts of what remains of the project.

There is still no detailed plan for the site, despite the demolition of homes and businesses in preparation for the work.

Sunak said he would bring in private sector developers to build a Canary Wharf-style development around Euston that would subsidise the rebuilding of the station.

Government officials have said the Euston rebuild may not be completed without private investment, but the transport department has insisted that HS2 will run to the station.

Although soaring construction costs have contributed to the budget increases, an internal report last year pointed to wider problems. 

Two of the four consortiums hired to oversee the engineering work did not have “sufficient capacity and capability to manage all the various obligations placed upon them”, it found.

The internal report also criticised the project for its decision to record costs in 2019 prices. This meant none of the figures reflected “what has been or is being paid”.

A top civil servant warned last week that Sunak’s decision to build only the first phase of HS2 and axe the line north of Birmingham had damaged the economic rationale for the project.

In a letter to the House of Commons public accounts committee, Dame Bernadette Kelly, the DfT’s permanent secretary, wrote: “Taking an estimated range for the total costs of phase 1 and assessing them against the estimated total benefits [the project] would represent poor value for money.”