What is the HS2 inflation rate?

With the latest consumer price figures, thoughts turn to questions on what the expected cost of HS2 would be, in current figures.

It seems, no-one knows: the Government are determined not to release updated costs, with Patrick McLoughlin telling the Lords Economics Affairs Committee who asked for costs in 2014 or 2015 prices “in order to ensure consistency across the programme, we are maintaining the prices for programme delivery in 2011 prices”.

Freedom of Information requests from Councillor Seb Berry to HS2 Ltd and the DfT asking for the 2015 costs were equally uninformative: HS2 Ltd claimed that they did not hold the information, and the Dft said that they had no business need for the information.

If this is true, that no-one in either the DfT or HS2 Ltd knows the cost this is a serious problem for its finances. With the 2011 cost for HS2 at £50billion, even small budget overruns will be of the order of many millions of pounds.

However, the costs of HS2 will be increasing faster than consumer inflation. The Lords Economics committee, used a very crude indexation against the Department for Business, Innovation and Skills Tender Price Indices. They said

The Department for Business, Innovation and Skills publishes Tender Price Indices, which measures the movement of prices in tenders for public sector construction contracts in the UK. This showed that the cost of public sector construction contracts increased by 13 per cent between the first quarter of 2011 and the first quarter of 2014 (the last date for which figures were available). Applying this increase to the £50.1 billion cost of HS2 would give a figure of £56.6 billion in 2014 prices.

But even this oversimplifies the picture: in two years between 2012 and 2014, rail construction workers wages rose by 74%, compared to other construction workers whose salaries were nearly flat.  This means that for HS2, the Tender Price Index is highly likely to seriously underestimate any uplift in costs for such a large railway project.

A recent report in the Sunday People  showed that HS2 Ltd staff were spending massively on office costs, such as an office chair for £723.  HS2 Ltd claimed that they were within budget: but they were supposed to be working on detailed design for Phase 2 this year, which has not yet been announced. That will have reduced the amount the company needs to spend this year, but increase costs for later years.  There is no sign that they have adjusted their budget to reflect that.

So we ask again:- what is the HS2 inflation rate?

4 comments to “What is the HS2 inflation rate?”
  1. If what you say is true, then it is surely a cause for serious concern…but can you please be more specific?

    Can you identify which particular schemes have been cancelled or put on hold as a direct result of giving priority to High Speed Rail?

    ( Since the abolition of the CEGB,electricity generation has been transferred, for better or worse, to private sector companies- frequently foreign owned, while government policy is pushing more and more schools to becoming ‘Acadamies’, with private finance expected to provide the ‘plant’.
    And houebuilding has been left in the main to private developers since the 1980s. So perhaps these three areas of provision should be excluded from your list)

    I fear that if you cannot be more precise, then you very telling points will be regarded by your opponents as no more than bluff and bluster and not worth serious attention.

    • You can be answered at a number of different levels.

      Check out the FT article on 17 March 2015 which reports that “Capital Spending” has fallen from £ 57 bn in 2009 – 10 to £ 42 bn in 2013 – 14. Figures from the National Audit Office. That includes schools, hospitals, transport and energy projects. Most notable reduction schools ( down 55 % ) and money for community housing ( down 62 % ).

      I remember a much announced plan for infrastructure projects of something like £ 300 billion. That was all in the press about 3 years ago. Apart from Hinckly C ( now in serious jeopardy because of technical problems in France ) and HS2 I’ve heard precious little since. It is almost as if the government is saying “build HS2 and we’ve ticked the capital spending box”. Wrong !

      On the railways look at the latest performance of Network Rail – its programme of enhancements and renewals is well behind where it should be from Cardiff to York. According to the editor of Rail News the industry looks at the delays and cancellations of Network Rail projects with “dismay”.

      So no, everything is not rosy in the garden.

      Once serious money starts to be spent of HS2 we can expect more pressure on capital budgets. You would be very naïve to expect anything else. 5 years on we are no further out of the austerity tunnel and cuts will continue for many more years. The £ 8 bn “saving” on conventional rail services contained with the HS2 plans give an indication of this.

  2. What are the totals of deferred and shelved projects being moved into the future and into a bigger backlog for the next thirty years

    Projects being cancelled and not developed to implementation for infrastructure, hospitals power stations, schools and houses.

    The Government has cancelled and suspended projects and deferred and put on hold billions of pounds of expenditure on the wrong assumption they can be disregarded but it is not possible to wait another 5 years. The UK cannot have HS2 and other projects which in aggregate total more than the annual cost of HS2. You do not know of the shelved and rejected schemes that are necessary for the productivity and growth and functioning on the UK. The HS2 is a shield of convenience for the next decade to create the context as to why other necessary projects are not proceeding. Cameron and Osborne are hiding the deferred lists of requirements. HS2 is not only distracting the nations MPs from real debate on the essential but the majority of the current MPs are helping to divert attention from very vital and urgent needs. Duped by the Cameron and Osborne illusionists. HS2 is not the nations priority but is serving the Governments duck and dive approach as they shy away from the bigger issues that are not addressing. Hoodwinked by Cameron and Osborne.

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