From the Public Accounts Committee session

The uncorrected transcript of the entire session can be read here. The Department for Transport and HS2 Ltd were clearly on the defensive: we’ll bring you more from the session later.

The session started with Philip Rutnam, Permanent Secretary in the Department for Transport agreeing that the facts in the National Audit Office report was correct – “Yes. I have been through the normal process with the Comptroller and Auditor General of confirming that the facts in the Report are accurate.”

When asked “why did the Minister say that he did not recognise the figures?” Rutnam eventually said, on the £3.3 billion funding gap identified by the National Audit Office report:

Rutnam: Until last week, the Government did not have any public spending plans going beyond 2015-16. Therefore, while there could be a gap in affordability of this kind if you made certain assumptions, the Government did not accept that there was a gap, because there were no public spending plans going beyond 2015-15. Obviously, since last week, the position has moved again.

Q9 Mr Bacon: Correct me if I’m wrong, but it sounds to me as if you are saying, “There was no funding gap, because we did not have any funding at all.” That is right, isn’t it? That is what you are saying.

Philip Rutnam: There was no funding gap because the Government had not yet set out its public spending plans beyond 2015-16.

There was discussion about the “harshness” of the criticisms of the NAO report made by the DfT.

…Q24 Austin Mitchell: None of this attenuates or excuses the harshness of the criticisms that are attributed by the media to the Department on the Report. Those criticisms were that the National Audit Office had made errors in calculations, that its analysis was out of date, that the findings of the Report were based on incomplete and misleading statistics and that it failed to take into account the wider benefits of the scheme. Those criticisms were all attributed to your Department. Were they wrong, or do you deny them now?

Philip Rutnam: The Department’s position on the Report has been clear. I made my position on the Report clear in letters to the Comptroller and Auditor General-

Q25 Austin Mitchell: Why were those statements issued then?

Philip Rutnam: In which I confirmed that, so far as the examination of the Report for accuracy of factual content was concerned, I was content. I also indicated that I was broadly content with the recommendations.

What I was not content with-the Comptroller and Auditor General knew this throughout-was the core conclusion, the central conclusion, in relation to value for money, which was that the project risked resting on weak foundations. I did not accept that, because I did not think that it reflected the very good progress that has been made on the programme in the last 18 months to two years, and I thought also that in the overall balance of things, it put too much weight on weaknesses in elements of the strategic outline business case as developed at the tail end of 2011, which underpinned decisions in January 2012. That conclusion I did not accept. I have to say that the Secretary of State’s statement when the Report came out was very much in line with the letters that I had sent to the Comptroller and Auditor General.

Q26 Chair: Do you want to come in on that, Amyas?…

Amyas Morse [Comptroller and Auditor Genera]: In the last stage of our discussion about the Report, the element of disagreement between us came down to a choice of phrasing as between describing the foundations for the business case as weak or saying that they could be stronger. I was not prepared to say they could be stronger, because I did not think that was a fair summary of our concerns, and I have to say, of course we took account-right up to the minute we published the report, we were looking at everything new that had been produced, but the problem was that nothing had progressed to the point that you could really change that view. The original decisions were made on the faulty information, and since then, yes, we recognise-this is a Report that looks on balance, and what we said on balance was that, despite the Department having more recently made considerable efforts to strengthen the business case, which we acknowledge in the Report, we felt that none of them as yet-as yet-fundamentally altered our view of the quality of the business case, and that was very clear.

… By the way, based on those figures, it could have led to a funding gap. Our concern about that was to draw attention to it. Now, of course, it has been overtaken by a huge increase in the budgetary envelope.

Margaret Hodge then pointed out that between March 2010 and February 2011, the Dft’s calculation of benefits reduced by £12 billion. Between February 2011 and January 2012, the costs increased by £1.8 billion, because the DfT revisited forecasts on both revenues and operating costs. Between January 2012 and August 2012, the HS2 costs went up by a further £0.3 billion and the benefits went down by a further £0.2 billion.

She summarised by saying “in three not-quite-annual assessments before there has been a spade in the ground, all the costs are moving in the wrong direction… Costs are going up; benefits are going down.”

Q32 Chair: Okay. Let’s go to last week, when you increased the budget by about 30%.

Philip Rutnam: We did not actually have a budget for the project before. What we had in relation to phase 1-as indeed the NAO report recognises in paragraph 17 of the summary-in January 2012, in the business case, was an early estimate of the cost of constructing phase 1. That early estimate was based on a high-level, desk-based exercise. It is in the nature of these projects that as you advance, you will do more and more work-much more-on what the requirements of the project are, and as you do more work, you will uncover more things and refine your cost estimate. The change between the amount for phases 1 and 2 together-the figure of £32.7 billion, which was used in 2012-and the figure released last week reflects two things, principally: the first is much more detailed design work, and the second is, because we are now talking about funding rather than estimating costs, an increased provision for contingency….

Q34 Chris Heaton-Harris: What were the figures you were explaining to the public [in the 2011 consultation] that they-the taxpayer-would be paying?

…Alison Munro: At that point, I think it was about £16.5 billion for phase 1. We actually presented it in a range, so those were the figures we were presenting.

Q36 Chris Heaton-Harris: Was it a fair consultation? You were selling something with a price tag that has just gone up by a huge amount. That does not strike me as a fair consultation for the British public and the British taxpayer.

There was discussion of continguency for the HS2 project, which had always been included in the figures

Q39 Chair: May I just draw to your attention the fact that when you gave us the £32 billion to £33 billion figure, you said it had regard to optimism bias?…

Alison Munro: That was based on, as you tried to explain, an estimated central estimate, so there was a 50% probability that that would be exceeded.

… Q43 Chair: …You are telling us that you are very certain about phase 1, taking on board the point the Comptroller and Auditor General made about phase 2. On phase 1, what on earth do you need this massive contingency for? I tell you what this feels like to me. It feels a bit like the Olympics with its 50% contingency. You will spend way above the estimate and you will just say, “Well, we stayed within budget because we have this massive contingency. Some £14.4 billion is one heck of a lot of public money that is being set aside as a contingency in this project.

Austen Mitchell’s view was that the project was simply about vanity.

Q52 Austin Mitchell: I have to say that nothing I have seen in the report or that you have said today has dissipated my impression that, here is a project that has been plucked out of the air so as not to be humiliated by the French in the way that President Mitterrand used to do, regarding our having nothing but slow trains in this country. The civil service and HS2 are then sent out to find justifications for this policy. That explains all the changes in costings, all the new factors that have been brought in, and all the dredging round for regional development and 200,000 new jobs around every station on the line. It looks like you are trying to justify a policy that was plucked, in principle, from the air.

Philip Rutnam: I must say I really don’t think that’s fair or accurate as an account of the policy….

Asked about alternatives to HS2, David Prout and Philip Rutnam were prepared to admit that they cost less, and that for some of them, the benefit-cost ratio was better than HS2, but kept repeating “they did not meet the strategic objectives of HS2.”

Mr Bacon: It’s amazing. I would have thought that for £42 billion you would have got a few trains thrown in, but apparently not.

Chris Heaton-Harris: No, that is £7 billion on top.

Mr Bacon: So we are pushing £50 billion already. Everybody thinks it is going to be £70 billion, £80 billion or £100 billion by the time we have finished, don’t they? That would be par for the course, given your record.

Q75 Chris Heaton-Harris: I haven’t been able to find the information properly, but most high-speed railways across the world need subsidising post construction. What sort of subsidy level is the Department thinking of giving when things are running after construction?

David Prout: All our modelling shows that there will be quite a substantial operating surplus for HS2.

Q76 Chris Heaton-Harris: Okay, so it is going to be one of the very few high-speed rail projects in the world that runs at profit in surplus.

David Prout: Yes. Built into our BCR is the operating surplus.

…Q87 Chris Heaton-Harris: The sums you have given us add up to a lot per constituency-£75 million, and maybe a lot more than that-so it is actually quite of interest to everyone around this table, whether they are affected by HS2 or not. It is a big leap of faith-it is almost like “Field of Dreams” and Kevin Costner, “If you build it, they will come”. I just wonder what other costs you have been thinking about. We are going to ship a lot of people between cities. Has there been an impact assessment on what HS2 will do to the London Underground, for example?….

On the timescales for the project:

More to follow….