The High-Speed 2 (HS2) project, a major infrastructure initiative in the UK, is facing a significant financial adjustment. Richard Thompson, HS2 Ltd's chair and interim chief executive, recently disclosed to the House of Commons’ transport select committee that phase one of this ambitious project is now estimated to cost an additional £8bn to £10bn over the initial estimates set in 2019.
Originally, the funding envelope for HS2 phase one was set at £44.6bn in 2019 prices. However, by the end of last year, HS2 Ltd, the public company orchestrating the high-speed rail project, revised the estimate for the London to Crewe leg, projecting it would cost between £49bn and £57bn in 2019 prices.
Thompson's recent statement highlights a significant impact of inflation on the project's costs. Adjusting for inflation, the estimate for phase one rises by £8bn to £10bn, potentially reaching up to £67bn in 2023/24 prices. This spike in cost is attributed to a remarkable 27% construction inflation over the past three years, with materials like steel, rebar, and concrete experiencing price surges between 47% and 53%.
This financial recalibration underlines the challenge of adhering to government policies that require infrastructure estimates to be updated only at spending review points. As a result, HS2 Ltd continues to work with 2019 prices, despite paying current market rates, leading to significant administrative efforts to adjust accounts accordingly.
The accuracy of HS2 Ltd's 2019-price estimate for phase one has been defended by Thompson, who pointed out that it was derived from extensive analysis and numerous meetings involving the Department for Transport. However, a final estimate is pending until several scope-related questions are resolved, particularly concerning HS2’s Euston Station.
Thompson outlined key uncertainties impacting the project's scope, including decisions on rolling stock changes, the size of Old Oak Common station, tunnelling management between Old Oak Common and Euston, the potential development of an “eastern stub” at Euston, and alterations to the design of Birmingham Curzon Street station.
While HS2 has officially been removed from the Euston Station development, "no regrets" work continues on the site, with HS2 Ltd planning to spend £144m with Mace/Dragados in 2024. These developments highlight the fluid and complex nature of large-scale infrastructure projects, where cost estimates and scopes are subject to change due to a range of external factors like market conditions and policy decisions.
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