Ministers and HS2 bosses knew railway over budget years ago

The government and HS2 knew that the new high speed railway was over budget and was probably behind schedule years ago, documents seen by the BBC show.

Crucially, the documents were written in 2016, before MPs had signed-off the first phase of the project.

It is evidence that both the public and Parliament were not given the full picture about the true cost.

The Department for Transport said: “Like all major, complex projects delivery plans evolve over time.”

“We regularly keep Parliament and members of the public updated on the progress of the project,” the DfT added.

HS2 Ltd is a public company, set-up to build a new high-speed line linking London, Birmingham, Manchester and Leeds. It is funded by the taxpayer.

The line was due to be built in two phases, beginning with a new railway linking London and the West Midlands.

This would be followed by a second phase taking services from Birmingham to Manchester and Leeds.

Phase one of the development was due to open at the end of 2026, with the second phase scheduled for completion by 2032-33.

In total, the railway was supposed to cost £55.7bn.

Earlier this month, the government said it planned to review the costs and benefits of the rail project, with a “go or no-go” decision by the end of the year.

But until recently, ministers and bosses at HS2 have insisted everything was on track.

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Only last month, the transport minister, Nusrat Ghani MP, who is now a government whip, told Parliament “confidently” that the programme would be delivered on budget and on time.

“There is only one budget for HS2 and it is £55.7bn,” she said.

But the documents obtained by BBC News show that at least three years ago both the government and HS2 knew that wasn’t the case.

‘Dear George’

In May 2016, then chancellor George Osborne received a letter from Patrick McLoughlin, the transport secretary at the time, in which he admitted that the first stretch of the railway was already a billion pounds over budget.

The budget for phase one of HS2, linking London to Birmingham, is £24bn.

However a former HS2 director told the BBC that the £1bn overspend was considered, at the time, to be “a very conservative estimate.”

“Internally the teams knew it was a lot higher than that,” he added.

The £1bn overspend is worse than it first seems because it did not include a realistic estimate for how much the land and property needed to build the railway would cost.

Property estimate ‘ad-hoc’

The estimate for land and property which HS2 was using at the time for the London-Birmingham stretch was £2.8bn.

The consultancy firm PwC found that “fundamental parts” of that estimate had been calculated in an “ad-hoc manner”, according to a report seen by the BBC.

And two senior figures who worked in the Land and Property department at HS2 from August 2015 to April 2016 calculated that, in reality, the true cost was £4.8bn.

That would have added a further £2bn, taking the total overspend at the time on phase one of the project to at least £3bn.

Phase one delay

The May 2016 letter to George Osborne also shows that a one-year delay to the opening of phase one was already being considered as it could “bring cost savings.”

Cost was, in the words of the then transport secretary, “a significant challenge.”

The letter also reveals that, at that time, HS2 failed a critical hurdle called Review Point One.

According to a former HS2 director that “was like saying it wasn’t fit for purpose.”

The BBC has also obtained a Department for Transport briefing note labelled as “confidential”, written in December 2016.

The document acknowledges that even with planned savings “a significant gap to target price will remain.”

And it says, following alterations to the scheme, phase one of HS2 would need to open a year late.

Worsening situation

The situation has become a lot worse since the two documents were written.

Last month, a leaked letter suggested that HS2 could be up to £30bn over its budget.

But in December of last year, HS2’s chief executive, Mark Thurston, was still insisting everything was fine.

“We’re confident we have a good estimate for the first phase,” he told BBC Panorama.

“We are not over budget.”

Second phase doubt

The Department for Transport memo also states that there is a relatively small chance that the stretch of the railway, linking Birmingham to Crewe, which is known as phase 2a, would be delivered on time.

It puts the probability of that happening at a mere 35%.

The Crewe to Birmingham stretch is due to run trains from December 2027.

In a statement to the BBC, HS2 Ltd said it had “provided regular updates on the project”.

It said there had been “extensive scrutiny” from the National Audit Office and Parliamentary Committees.

And it said that chief executive Mark Thurston had “spoken publicly for some time about the cost pressures facing the project”.

Mr Thurston was appointed as HS2’s chief executive in March 2017.

His predecessor, Simon Kirby, said during his tenure HS2 Ltd “operated fully transparently in respect of the Department for Transport who were kept fully appraised of all relevant information on the cost and timetable of the project.”