Did HS2 cost too much, and was its high price a key reason for Phase 2's cancellation?

[eldomtom2]

Unsurprisingly transit blogger Alon Levy is banging the "HS2 costs too much" drum (they were part of a research project into construction costs, and frequently denounce construction costs in the Anglosphere in fiery terms). Any opinions on their analysis? - "HS2 costs too much" is a common opinion I hear from people outside the UK (and in the UK too) and I'd be interested to hear what this forum thinks.

High Speed 2 is (Partly) Canceled Due to High Costs

It’s not yet officially confirmed, but Prime Minister Rishi Sunak will formally announce that High Speed 2 will be paused north of Birmingham. All media reporting on this issue – BBC, R…

pedestrianobservations.com

It’s not yet officially confirmed, but Prime Minister Rishi Sunak will formally announce that High Speed 2 will be paused north of Birmingham. All media reporting on this issue – BBC, Reuters, Sky, Telegraph – centers the issue of costs; the Telegraph just ran an op-ed supporting the curtailment on grounds of fiscal prudence.

I can’t tell you how the costs compare with the benefits, but the costs, as compared with other costs, really are extremely high. The Telegraph op-ed has a graph with how real costs have risen over time (other media reporting conflates cost overruns with inflation), which pegs current costs, with the leg to Manchester still in there, as ranging from about £85 billion to £112 billion in 2022 prices, for a full network of (I believe) 530 km. In PPP terms, this is $230-310 million/km, which is typical of subways in low-to-medium-cost countries (and somewhat less than half as much as a London Undeground extension). The total cost in 2022 terms of all high-speed lines opened to date in France and Germany combined is about the same as the low end of the range for High Speed 2.

I bring this up not to complain about high costs – I’ve done this in Britain many times – but to point out that costs matter. The ability of a country or city to build useful infrastructure really does depend on cost, and allowing costs to explode in order to buy off specific constituencies, out of poor engineering, or out of indifference to good project delivery practices means less stuff can be built.

Britain, unfortunately, has done all three. High Speed 2 is full of scope creep designed to buy off groups – namely, there is a lot of gratuious tunneling in the London-Birmingham first phase, the one that isn’t being scrapped. The terrain is flat by French or German standards, but the people living in the rural areas northwest of London are wealthy and NIMBY and complained and so they got their tunnels, which at this point are so advanced in construction that it’s not possible to descope them.

Then there are questionable engineering decisions, like the truly massive urban stations. The line was planned with a massive addition to Euston Station, which has since been descoped (I blogged it when it was still uncertain, but it was later confirmed); the current plan seems to be to dump passengers at Old Oak Common, at an Elizabeth line station somewhat outside Central London. It’s possible to connect to Euston with some very good operational discipline, but that requires imitating some specific Shinkansen operations that aren’t used anywhere in Europe, because the surplus of tracks at the Parisian terminals is so great it’s not needed there, and nowhere else in Europe is there such high single-city ridership.

And then there is poor project delivery, and here, the Tories themselves are partly to blame. They love the privatization of the state to massive consultancies. As I keep saying about the history of London Underground construction costs, the history doesn’t prove in any way that it’s Margaret Thatcher’s fault, but it sure is consistent with that hypothesis – costs were rising even before she came to power, but the real explosion happened between the 1970s (with the opening of the Jubilee line at 2022 PPP $172 million/km) and the 1990s (with the opening of the Jubilee line extension at $570 million/km).

 

[Energy]

The article is correct about scope creep but tunnelling has only caused an increase on the original budget, otherwise tunneling has been going well. A former HS1 exec has made the point that the budget is well known so all the contractors want a big piece of the money while the HS1 budget was kept fairly secretive so contractors put in more realistic prices.

HS2 has underestimated the amount of stuff on the surface to move, a lot around Warwickshire and there are plenty of roads and utilities being moved at great expense. A greater use of viaducts would avoid this.

Spain also tends to reuse a lot of modular sections for its rail infrastructure and as such can get stuff done quick and cheap. A kit of standard HS2 viaduct parts could have saved a lot of design and concrete casting expenses.

However the bit which was cancelled today (2a) is only £5bn. Its cancelled because Rishi doesn't like it and wants a scapegoat for where all the money has gone rather than the poor post-Truss financial conditions.

 

[Purple Train]

There was an element of gold-plating, yes, but to imagine that it was the reason for Phase 2's cancellation is to imagine (fancifully) that the current government has a method of thought process that isn't ideological and illogical.

 

[matacaster]

Perhaps architects and others should be held more accountable. A significant portion of fees should be held back and only released when a design is within stated budget. Architects are renowned for trying to 'make a name' for themselves with something original, stunning, ugly or by using fashionable innovative materials untested by time. Usually regardless of how the users of said structure might suffer.

 

[eldomtom2]

There was an element of gold-plating, yes, but to imagine that it was the reason for Phase 2's cancellation is to imagine (fancifully) that the current government has a method of thought process that isn't ideological and illogical.

Maybe, but I'm seeing a lot of online comments, especially from people in the "transit advocacy" community, to the effect of "it's bad that they cancelled it, but what can you expect when costs ballooned so much"...

 

[Arkeeos]

HS2 cost what it cost for loads of reasons not least of which is that the project is very valuable 18tph makes it far more useful than any other high speed line in the world.

Cost could have been reduced, my preferred method would be reducing earth works by building it on standardised viaducts,

but some of it is unavoidable, I don’t think there is any world where HS2 has the same price per kilometre as Spain, even excluding stations, depots and trains.

The government just isn’t willing to pay the cost, they’re fine to spaff it on marginal line openings that will increase rail ridership by 0.1% running 1tph while congesting main stations however.

 

[The Ham]

Maybe, but I'm seeing a lot of online comments, especially from people in the "transit advocacy" community, to the effect of "it's bad that they cancelled it, but what can you expect when costs ballooned so much"...

I'll ask again here, as when I've previously asked and got no answer (not necessarily of you, your post is just an example of the many which state it), other than Euston (which had doubled) what other costs have risen significantly since HS2 phase 1 had is construction budget set?

 

[Energy]

I'll ask again here, as when I've previously asked and got no answer (not necessarily of you, your post is just an example of the many which state it), other than Euston (which had doubled) what other costs have risen significantly since HS2 phase 1 had is construction budget set?

Something often missed is that initial HS2 estimates didn't include rolling stock, later ones did.

 

[eldomtom2]

other than Euston (which had doubled) what other costs have risen significantly since HS2 phase 1 had is construction budget set?

I'm not saying that the perception that HS2's costs have ballooned is necessarily accurate. I'm saying it's a very common perception. And there's also the argument that its construction budget was too high to begin with.

 

[Dan G]

No and no

There's no suggestion that industry are over-charging to construct the designs desired. It's been cancelled to fund tax cuts (if you believe the Tories will reallocate the £36bn you will believe anything)

 

[JamesT]

I'll ask again here, as when I've previously asked and got no answer (not necessarily of you, your post is just an example of the many which state it), other than Euston (which had doubled) what other costs have risen significantly since HS2 phase 1 had is construction budget set?

I'm not sure at what point you count the budget as being 'set', but this article https://www.instituteforgovernment.org.uk/article/explainer/high-speed-2-costs mentions a couple of things:

Scope changes: the scope of HS2 has expanded. During the passage of the hybrid bill to approve the first phase of the line, for example, HS2 Ltd added a longer tunnel through the Chilterns. HS2 Ltd estimate that scope changes in response to Parliament account for £1bn of the increase between 2017 and 2019

Ground conditions: as construction companies developed detailed designs, their estimates for the cost of building the line have risen. The companies discovered that ground conditions were poorer than HS2 Ltd had expected, and that they would have to undertake more structural reinforcement before laying the tracks, for example. The cost of civil engineering for Phase 1 rose £5bn between 2017 and 2019, accounting for almost half of the cost increase on this part of the line

Certainly the latter one sounds like costs increasing after they'd started.

 

[Bald Rick]

The main cost increase is inflation. The costs in the Full Business Case (published 2020) were quoted at 2015 prices. RPI since 2015 is nearly 30%, construction price inflation rather more. (Although, typically, construction price inflation is falling rapidly and is on the cusp of going negative).

Why has construction inflation increased so much? Construction is largely about three things: Labour, Materials and plant Plant (and specifically fuelling the plant).
Materials inflation is driven almost entirely by energy costs.
Plant inflation similarly
Labour costs by the labour market generally, and particularly at the ’grunt’ end, by minimum wage levels. All of which have been affected upwards by Government policy.


There are, without doubt, specification issues that caused the original cost to be so high. Building it for 18 tph and 400kph is one (requiring slab track and in turn a rock solid formation); tunnels though the Chilterns another (the French wouldn’t have done this). There is also the cost of the works done to keep construction traffic off local roads.

Nevertheless it is inflation that has been the killer.

 

[eldomtom2]

There are, without doubt, specification issues that caused the original cost to be so high. Building it for 18 tph and 400kph is one (requiring slab track and in turn a rock solid formation); tunnels though the Chilterns another (the French wouldn’t have done this).

Do you view these as mistakes then?

 

[Bald Rick]

Do you view these as mistakes then?

The slab track, and what it entails, yes. But in terms of effect on total cost it’s pretty small.

The tunnels, I can see both sides of the argument.

The main thing that is making me cross is that Phase 2a didn’t really have these issues.

 

[The Ham]

The main cost increase is inflation. The costs in the Full Business Case (published 2020) were quoted at 2015 prices. RPI since 2015 is nearly 30%, construction price inflation rather more. (Although, typically, construction price inflation is falling rapidly and is on the cusp of going negative).

Why has construction inflation increased so much? Construction is largely about three things: Labour, Materials and plant Plant (and specifically fuelling the plant).
Materials inflation is driven almost entirely by energy costs.
Plant inflation similarly
Labour costs by the labour market generally, and particularly at the ’grunt’ end, by minimum wage levels. All of which have been affected upwards by Government policy.


There are, without doubt, specification issues that caused the original cost to be so high. Building it for 18 tph and 400kph is one (requiring slab track and in turn a rock solid formation); tunnels though the Chilterns another (the French wouldn’t have done this). There is also the cost of the works done to keep construction traffic off local roads.

Nevertheless it is inflation that has been the killer.

Indeed, however inflation is also a risk for all those replacement projects.

Also, inflation should also mean a greater tax take, thus reducing its impact on the costs.

 

[Trainbike46]

The slab track, and what it entails, yes. But in terms of effect on total cost it’s pretty small.

The tunnels, I can see both sides of the argument.

The main thing that is making me cross is that Phase 2a didn’t really have these issues.

Isn't slab track supposed to be much lower maintenance, and save costs in the long run? Especially if it's effect on total cost is pretty small that seems like a fair trade-off

I'm angry they cancelled phase 2a in particular, it was relatively cheap, already through parliament and adds a lot of benefits - it's the stupidest section to cancel

Though the plans for Euston seem ill-advised at best as well

 

[A0]

The main cost increase is inflation. The costs in the Full Business Case (published 2020) were quoted at 2015 prices. RPI since 2015 is nearly 30%, construction price inflation rather more. (Although, typically, construction price inflation is falling rapidly and is on the cusp of going negative).

Why has construction inflation increased so much? Construction is largely about three things: Labour, Materials and plant Plant (and specifically fuelling the plant).
Materials inflation is driven almost entirely by energy costs.
Plant inflation similarly
Labour costs by the labour market generally, and particularly at the ’grunt’ end, by minimum wage levels. All of which have been affected upwards by Government policy.


Nevertheless it is inflation that has been the killer.

And it's worth pointing out that CPI since 2015 until the end of last year was less than 3% - historically a very low rate of inflation. The spike at the end of last year was driven largely by fuel prices following Russia's invasion of Ukraine.

Consumer price inflation, historical estimates and recent trends, UK - Office for National Statistics

Analysis of the Consumer Prices Index including owner occupier's housing costs, extending back to 1950, incorporating the historical modelled estimates,1988 to 2004.

www.ons.gov.uk

Had this project been attempted at in the 70s or 80s the increases would have been much, much higher.

Also, inflation should also mean a greater tax take, thus reducing its impact on the costs.

Not necessarily - it depends on what is driving inflation and also whether or not the government of the day is 'index linking' tax thresholds (a favourite wheeze of Gordon Brown was not to do that, which resulted in a massive increase in the number of people paying "higher" (i.e. 40%) tax than in previous years.)

Yes, upward prices mean extra income from VAT, however if it consumers spend less because things cost more, then it often makes little or no difference. With income, yes, if incomes are increasing by inflation or higher then that can lead to increases in tax take, but that can be offset if it's resulting in lower profits by a reduction in corporation tax receipts.

And if inflation is resulting in increased costs of delivering the project in materials or resource costs - then it may not help. So if somebody gets a £ 5 pay increase (making up numbers to prove the point) it costs the project £ 5 more, yet the government will only get £ 1 back in tax at basic rate or £ 2 at higher rate - so there's still an extra £ 3 the government is having to find if it's the one footing the bill for the project.

 

[Bald Rick]

Isn't slab track supposed to be much lower maintenance, and save costs in the long run?

Lots of things have better whole life costs. But if the total price is too big, the whole job is off. As we have seen.

 

[Sad Sprinter]

In hindsight would the M40 corridor have been better?

 

[The Ham]

Not necessarily - it depends on what is driving inflation and also whether or not the government of the day is 'index linking' tax thresholds (a favourite wheeze of Gordon Brown was not to do that, which resulted in a massive increase in the number of people paying "higher" (i.e. 40%) tax than in previous years.)

Yes, upward prices mean extra income from VAT, however if it consumers spend less because things cost more, then it often makes little or no difference. With income, yes, if incomes are increasing by inflation or higher then that can lead to increases in tax take, but that can be offset if it's resulting in lower profits by a reduction in corporation tax receipts.

And if inflation is resulting in increased costs of delivering the project in materials or resource costs - then it may not help. So if somebody gets a £ 5 pay increase (making up numbers to prove the point) it costs the project £ 5 more, yet the government will only get £ 1 back in tax at basic rate or £ 2 at higher rate - so there's still an extra £ 3 the government is having to find if it's the one footing the bill for the project.

Indeed, which is why I said "should" and "reducing the impact on the costs", rather than "would" and "offset the costs".

 

[Bald Rick]

In hindsight would the M40 corridor have been better?

I don’t think that would have made a difference

 

[Magdalia]

The big difference with this inflation spike is the high level of government debt and the large proportion of it that is index linked. As a result the government's debt interest costs have rocketed.

 

[A0]

The big difference with this inflation spike is the high level of government debt and the large proportion of it that is index linked. As a result the government's debt interest costs have rocketed.

But that's only the last 12 months - CPI has been sub 3% for most of the life of HS2 yet still costs have rocketed. So whilst it may be conveninent to blame the current inflation spike, such a spike would have been factorered into the costings at the outset - when you're planning a 20 year project you can't assume (or shouldn't assume) that historically low interest rates and inflation rates will remain for the whole of that period.

 

[stuu]

The big difference with this inflation spike is the high level of government debt and the large proportion of it that is index linked. As a result the government's debt interest costs have rocketed.

Although of course by the time any of the big money needs spending on Phase 2, inflation may well be significantly lower, and with it, the debt interest spending

 

[Bevan Price]

It is just a symptom of incompetence of running many large projects where Government and Civil Service have an involvement.
Just look at over-price, late running defence contracts; nationwide information system for NHS, etc.
The word "p*ss-up, manage, brewery, couldn't" come into mind.

 

[The Ham]

It is just a symptom of incompetence of running many large projects where Government and Civil Service have an involvement.
Just look at over-price, late running defence contracts; nationwide information system for NHS, etc.
The word "p*ss-up, manage, brewery, couldn't" come into mind.

It's not even necessarily only national government on big projects.

The problem with trimming costs is that you can't get high quality staff.

Things which should be easy don't happen, because their policies and procedures aren't robust. Meaning that things get missed because the staff are overworked.

Add to that, the fact that information isn't passed between departments, so key things aren't planned for.

Eldest starts secondary school, first cohort where their year group has increased by 30 kids through primary education. Home to school transport hasn't added any extra buses, so the buses are overcrowded. Add to that kids (were the application was made well before the deadline - made in March deadline is end of July) get approved to be given a bus pass, only they don't get allocated to a bus route so no bus pass is issued.

After two weeks of zero response to calls and emails, when a route is allocated and a bus pass issued in the post, within days a second one is sent out (some kids have been sent three). That's an extreme case, but there's kids who are in year 10 where this is the first year there's not been issues with their pass.

The mad thing, each pass is posted (even siblings get separate letters), which must be costing a fortune in postage. It would likely be cheaper to courier the bus passes to the school and pay them (say) £200 for the admin cost to hand them out (there's over 450 kids being moved from one village to the next).

There's also been reports of transport providers handing back their contacts, adding to the confusion and delay as the staff have to deal with that as well.

If local government fails that badly at something which should be fairly easy to manage, it's no surprise that bigger more complex, more risky schemes end up in a mess and being over budget.

I would argue that, whist the staff are the ones getting things wrong, ultimately the buck stops with central government with the lack of funding being provided when it's been known that the costs for social care were going to rise significantly and yet cuts to central government funding to local authorities have happened again and again whilst the rises in consul tax have been capped (for most of the last decade at 3%).

That means that costs have gone up (significantly), income from once source has fallen (in actual terms, let alone real terms) and income from the other major source (in real terms) had either been growing very slowly (read virtually no growth) or has been falling.

Is it any surprise that things go badly at every level of government. Without the skills to manage a complex project (like HS2) those supplying goods and services will try their luck at squeezing a bit more value out of the project. When they find that they can - guess what they do next - they do it again and again.

It happens in the public sector too when things are managed as they should be. I've seen cases of contractors complaining about being found out when the client was fed up of shoddy work so employed an agent to check what's going on and they now have to fix a LOT of stuff at their own expense as they did it wrong.

Stuff which was obviously wrong. For example rather than a plastic honeycomb structure to aid in supporting roads (50mm thick), they install weed matting (0.5mm thick).

Likewise a building with a design change in level from the door to a path of 35mm having a that fall plus there's a step of at least 1 brick height from the door down (bricks are 65mm plus 10mm for the mortar, so out by at least 75mm).

If there's a change to the design the contractor will charge an extra fee. Unless you have someone who is competent, the contractor will likely get away with an extra charge for fixing something which was likely their fault (or could be another contractor's fault but without the knowledge as to who is to blame the client just pays to get it fixed as they are under pressure to finish things on time).

Of course that's only part of the issue, add it's already been established that the big costs are down to inflation.

 

[The Ham]

Even those opposed to HS2 aren't talking very favourably about the cancelling of HS2:

HS2 scaleback: long-termist or shortsighted? | Construction News

The government hailed a raft of smaller transport schemes as it announced the much-rumoured cancellation of parts of HS2, but those plans have done little

www.constructionnews.co.uk

Speaking to CN from the Labour Party conference in Liverpool, longtime HS2 critic and former deputy chair of the Oakervee Review, Lord Berkeley, said he had initially welcomed Sunak’s announcement.

“What I was hoping for was they would divert quite a lot of money saved to other routes; [Sunak]appeared to do so at the time (of the speech), but he seems to have rowed back from most of that, which is very distressing,” he said.

If there is a change of governing party at the next election, it should prioritise transport schemes in the North and Midlands, he urged.

“What I’d like to see is local and regional services in the North and Midlands as good as what we have in London, if not better. I hope Labour will pick that up, but they’ve not said anything at the moment,” Lord Berkeley said. “We have to wait with bated breath.”

 

[Peter Sarf]

Even those opposed to HS2 aren't talking very favourably about the cancelling of HS2:

HS2 scaleback: long-termist or shortsighted? | Construction News

The government hailed a raft of smaller transport schemes as it announced the much-rumoured cancellation of parts of HS2, but those plans have done little

www.constructionnews.co.uk

Well my view is that the primary aim of cancelling HS2 was to save money. The bulk of that money is not going to be spent so soon on other projects as they are not so near to ready for the expensive work. So it was a way of effectively delaying a large amount of state expenditure for an indefinite period or possibly forever (which never exists as a valid term).

 

[Energy]

Well my view is that the primary aim of cancelling HS2 was to save money. The bulk of that money is not going to be spent so soon on other projects as they are not so near to ready for the expensive work. So it was a way of effectively delaying a large amount of state expenditure for an indefinite period or possibly forever (which never exists as a valid term).

Agreed, though I wouldn't call it saving money more not-spending money. Interest rates are up so the Treasury are spending a lot of cash servicing their index-linked loans.

It's not like Rishi was chancellor back in 2019 and should have really been sorting out HS2 financing back when interest rates were low.

 

[AndrewE]

Something that has always struck me is the huge investment in archaeology... I'm not saying it is wrong but all the film I have seen of 50 or more people on their knees in a huge marquee at Euston (and at other locations) for years on end must have put a cost onto the project.

My feeling is that this sort of work ahead of building infrastructure of national importance shouldn't be charged to the project.