HS2 financial report shows more delays as £1.8bn spent already

In the same week that Rail Magazine reported that Royal Assent of HS2 is expected to be delayed into the new year, the latest financial reports from HS2 Ltd have offered some form of explanation as to why the project, construction of which was originally meant to have started before the 2015 General Election, has been delayed again. Whilst construction is now meant to start next year, the financial reports state HS2 Ltd are so far behind that ground surveys will still be taking place on Phase 1 in 2017.

Whilst of the face of it a £223m (38%) underspend for the 2015-2016 financial year might look like a good thing, it has actually happened because HS2 Ltd have not progressed as far as they expected to in: acquisition of property, developing the technical design of HS2, surveying ground conditions, and completing on-site enabling works prior to construction. HS2 Ltd have spent £360m against an original budget £583m in the year, bringing the official total spend to £1789m as of March this year, without a single track being laid.

The only cost heading which HS2 Ltd have gone over budget on was by 5% on professional services fees, because despite all the delays, the financial statements state:

“This overspend has been caused by a higher than average cost per person and incentive payments based on the assessed performance of the company’s Development Partner and Professional Services Contractors exceeding the budgeted average performance rating.”

The underspends were explained as thus:

Acquiring property and providing discretionary compensation.

Expenditure for the period was £113.2m against a budget of £305.9m, an underspend of £192.7m (or 63%). This arose primarily due to a delay in completing the acquisition of large scale commercial properties ahead of the commencement of Main Works post Royal Assent.

Design Activity

Expenditure incurred was £40.3m against a budget of £50.2m, an underspend of £9.9m or 20%. The underspend arose primarily due to delays in developing the technical specification design required ahead of the start of Main Works and lower headcount within the company’s technical directorate than planned.

Surveying and Ground Investigations

Total expenditure was £33.6m against a budget of £45.2m, representing an underspend of £11.6m (or 26%). This was due to being able to agree a lower number of access agreements than was required to conduct the planned environmental surveys. This had a consequential impact on the number of surveys completed during the period. The timetable for remaining surveys was therefore rescheduled to be completed in 2016/17, ahead of the commencement of Main Works contracts post Royal Assent.

Enabling Works

Enabling works are the design and beginning of site preparation works prior to construction. HS2 Ltd have been designing the enabling works programme in order to ensure construction can be undertaken to its scheduled timetable and the impact on existing utilities is minimised. Expenditure was £43.9m against a budget of £57.4m, an underspend of £13.5m (or 24%).

Penny Gaines, chair of Stop HS2, responded:

“Although the Government claim HS2 will get built on time, these spending figures show that it is clearly fallen behind schedule again.  On design, on surveys, on property, they simply haven’t done the work they were expecting to have done by now.  And yet they are spending more than they budgeted on incentive payments for external contractors.”

“HS2 is a badly managed project.  They’re running their own gravy train, on a project which is not in the interests of the nation.  It should be scrapped as soon as possible.”

Stop HS2 Campaign Manager Joe Rukin added:

“Despite HS2 Ltd being behind schedule in every aspect of actually building the railway, the financial statements show this dismal performance is actually above expectations, meaning contractors are raking it in with incentive payments. It is clear HS2 Ltd have drawn up agreements which reward the failure of contractors with taxpayers money, which has to be an incredibly worrying indication of where the costs for HS2 will go, but this is absolutely consistent with the mismanagement of this vanity project.” 

“It is unquestionable that the timescale for HS2 is slipping yet again. You can’t build a railway if you haven’t designed it, done the ground surveys or prep work, and you certainly can’t build it if you don’t own the land it is meant to go on.”