The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"Investment in major rail infrastructure programmes takes a long time and costs a lot of money. It is therefore hugely important to ask the right questions and make properly informed judgements on priorities. Yet the Government takes decisions without a clear strategic plan.
For instance, the Government recently announced proposals for High Speed 3. It did not carry out an assessment of High Speed 3 before it gave the go-ahead to High Speed 2 and it therefore did not test whether improved connectivity in the North was a greater priority.
The Department has still to publish proposals for how Scotland will benefit from High Speed 2, including whether the route will be extended into Scotland.
The Department should set out a long term strategy covering the next 30 years for transport infrastructure in the UK, and use this strategy to inform decisions about investment priorities and specific investment decisions.
We are sceptical about whether the Department can deliver value for money for the taxpayer on High Speed 2. The overall funding envelope of £50 billion includes a generous contingency, and we are concerned that this will simply be used to mask cost overspends, rather than valid calls on contingency funds.
The contingency includes provision for likely inflation based on the Treasury’s guidance on the rates to apply, but construction costs can increase more quickly than general inflation.
Furthermore, David Higgins, the Chair of HS2 Limited, had said in announcing HS3 that he believed both HS2 and 3 could be built at the same time but the Department has not yet properly considered the impact of this on construction capacity, capability and costs.
Even though regional economic growth is one of the objectives of High Speed 2, from which businesses will presumably benefit, the Department considers measures to reduce the burden on the taxpayer, such as a supplement to business rates as happened with Crossrail, are not appropriate for High Speed 2.
The Department has a long way to go to prove that it is being more effective in realising benefits from major programmes.
The lessons from Ebbsfleet show that, without proper planning and active intervention, regeneration and the expected substantial economic benefits have not been delivered, despite High Speed 1 construction being completed seven years ago. The Government is only now putting in place an urban development corporation at Ebbsfleet to rectify this. We should not repeat these mistakes with HS2.
Finally, all too often extra costs, long delays and poor implementation result, in part, from a failure by the Department to invest enough people and money into supporting the infrastructure projects.
We are concerned that the Department is repeating the mistakes of the past with HS2 given the limited resources it is investing in supporting the project to secure regeneration benefits from this £50 billion programme."
Margaret Hodge was speaking as the Committee published its 28th Report of this Session which – on the basis of evidence from Philip Rutnam, Permanent Secretary, Department for Transport, David Prout, Director General, High Speed 2 Group, DfT and Clare Moriarty, Director General, Rail Executive, DfT – examined lessons from major rail infrastructure programmes.
Department responsible for ambitious and expensive programmes
The Department for Transport is responsible for a number of ambitious, expensive transport infrastructure programmes including the planned High Speed 2 programme. We are not convinced that these programmes are part of a clear strategic approach to investment in the rail network. In particular, recent proposals for a railway connecting cities in the north of England—a possible High Speed 3—suggest that the Department takes a piecemeal approach to its rail investment, rather than considering what would benefit the system as a whole and prioritising its investment accordingly. The Department told us it will deliver the full High Speed 2 programme within its overall funding envelope of £50 billion.
However, this funding includes a generous contingency and we are concerned that, without appropriate controls, it could be used to mask cost increases. When it comes to the wider regeneration benefits, insufficient planning meant that regeneration benefits in Ebbsfleet did not flow from High Speed 1 as expected. Although the Department told us that it has learned and is applying these lessons on High Speed 2, it needs to set out clearly who is responsible for ensuring that benefits are realised, and how that work will be coordinated.
30 years to completion
Over the last 20 years the Department for Transport has overseen several large rail infrastructure programmes through which it aims to improve services to the public. We have reported on five such programmes over the last decade or so: the modernisation of the West Coast Mainline and the Channel Tunnel Rail Link (now known as High Speed 1), which are now complete; Crossrail and Thameslink which are under construction; and High Speed 2, which is being planned. The programmes are all expensive—costing between £3.6 billion for Thameslink and up to £50 billion for both phases of High Speed 2. They also take a long time to complete, with some taking nearly 30 years from planning to completion, and construction alone taking up to 10 years.
The Department has faced a number of issues during its sponsorship of these programmes, such as setting out a clear case for investment, planning effectively, and evaluating and realising programme benefits. The Department is currently looking at further rail infrastructure programmes, including possible routes linking cities in the north of England, currently referred to as High Speed 3, and Crossrail 2.
Conclusions and recommendations
The Department still lacks a clear strategic plan for the rail network, and it is unclear how the Department makes decisions about which programmes to prioritise for investment. The Department acknowledged that one project can have an impact on other projects and routes, so it follows that programmes should be considered together. However, it did not provide a clear explanation for why an assessment of a high speed rail line between cities in the north of England (so-called High Speed 3) was not carried out before High Speed 2, to test whether improving connectivity in the north was a greater priority. We are also concerned that the Department continues to have a narrow geographical focus. For example, the Department is still to publish proposals for how Scotland will benefit from High Speed 2, including whether the route will be extended into Scotland.
Recommendation: The Department should set out a long term strategy covering the next 30 years for transport infrastructure in the UK, and use this strategy to inform decisions about investment priorities.
We remain concerned about the Department’s ability to deliver on time and budget. On some past programmes, including modernisation of the West Coast Mainline and Thameslink, the Department has needed to extend timescales and alter its approach to bring programmes back on budget and schedule. We also saw academic research which showed that the cost of delivering a kilometre of railway in the UK is higher than in other countries, and the Department acknowledges that it may be possible to make faster progress and considerable savings by adopting construction techniques used overseas.
The Department acknowledges that good planning and preparation determine success on major programmes and there are some signs that this lesson is being applied. For example, the Department told us that it is applying the governance structures used on Crossrail to High Speed 2, including the separation of the Department’s role as sponsor from the delivery role of HS2 Limited. HS2 Limited is recruiting the people who will build the railway now, earlier than has been done on other programmes, and has appointed a Chief Executive for Construction from Network Rail. While we recognise the importance of good preparation, we note that the scale of expenditure on High Speed 2 before the High Speed Rail Bill has been passed is unusually large.
Recommendation: The Department should apply learning from its previous projects and from overseas to speed progress and improve value for money to all projects it sponsors, including High Speed 2.
We are sceptical about whether the Department can deliver value for money for the taxpayer on High Speed 2. The Department told us that it is confident that it will deliver phase one of High Speed 2 within its available funding of £21.4 billion. However, the Department has included a generous contingency within that amount to give it 95% certainty that it can deliver within the available funding. Value for money will depend not only on the programme coming in within its funding, but also on the use of contingency funds being properly controlled. The Department is less confident about current cost estimates for phase two of High Speed 2 because it is at an earlier stage of development. Nonetheless, it told us that it will complete the whole of High Speed 2 within the overall funding envelope of £50 billion. This is despite the complexity of the programme, and uncertainty around, for example, future construction inflation.
The Department and Transport for London used various means including a supplement to business rates in London to help pay for Crossrail. However, even though regional economic growth is one of the objectives of High Speed 2, from which businesses will presumably benefit, the Department considers that such measures to reduce the burden on the general taxpayer are not appropriate for High Speed 2.
Recommendation: The Department should set out how it will control use of contingency on High Speed 2 and other projects, to provide assurance that generous contingency funds will not be used to hide cost overruns.
There is a risk that industry does not have the capacity to deliver all current and proposed programmes. David Higgins, the Chair of HS2 Limited, has stated his belief that High Speed 2 and High Speed 3 can be built at the same time. The Department, however, told us that it would need to carry out further work to establish whether this was feasible. One of the challenges in delivering multiple programmes is whether there are the skills and capacity to do so both within government and industry. The Department is taking steps to increase its own capacity and capability to sponsor programmes, and it told us that the most acute skills shortage facing the rail industry is in signalling.
Recommendation: The Department should work with industry and with other departments responsible for major infrastructure programmes to understand gaps in industry capacity, and put in place plans to manage any gaps to ensure all programmes can be delivered on schedule and within budget.
The Department has a long way to go to prove that it is being more active in realising benefits from major programmes. There was insufficient planning for regeneration at Ebbsfleet in Kent, and the expected substantial economic benefits have not been delivered, despite High Speed 1 construction being completed seven years ago.
The Government is only now putting in place an urban development corporation at Ebbsfleet to rectify this. The Department told us that it has learnt and is applying this lesson on High Speed 2, and that it has accepted 18 of the 19 recommendations of Lord Deighton’s Growth Task Force for High Speed 2. The Department sees it as the role of local authorities to use their existing powers and budgets to plan for development around proposed High Speed 2 stations, although it told us that it is looking into establishing an organisation to work with local areas on this. However, we remain concerned about the scale of action and resources the Department is dedicating to secure regeneration benefits from this £50 billion programme.
Recommendation: The Department should set out who is responsible for ensuring that benefits are realised, and how that work will be coordinated.