The smart money probably says that pre budget appeals from many quarters for the government to turn away from apparent plans for tax cuts and instead invest in some of the many areas of crumbling infrastructure and inadequate new infrastructure provision are likely to fall on deaf ears. Cynics might say that in a general election year a government that the polls all indicate is on its way out of office will not see the benefit of investing for the future and will prefer the immediate, tangible benefits of cash into the pockets of voters via tax cuts.
There is obviously much to be spent on. We won’t mention potholes and RAAC afflicted schools and hospitals, but the National Infrastructure Commission has said overall public and private sector investment needs to increase from an average of about £55 billion a year over the past decade to between £70 and £80 billion a year in the 2030s just to respond to global warming and to support growth across the UK. This would represent one of the steepest rises in UK infrastructure spending since WW2. Even if the political will to invest on that scale existed – which the Treasury would fight tooth and nail against – could the UK manage procurement on this scale?
The track record is not good. Cancellation of the northern section of HS2 might free up some money for infrastructure projects elsewhere, but highlights the UK’s dismal performance with infrastructure procurement. Planning to spend money on the scale of HS2 – and the exact scale is far from known even now – should have meant introducing world class cost control and other management practices from the earliest stages of project inception. But as a recent report from the House of Commons Public Accounts Committee spells out, neither the Department for Transport (DfT) or HS2 itself even knows how much the project will now cost. Or what the benefits will be.
Total costs will significantly outweigh benefits thanks to the cancellation of the northern sections, so any value for money arguments will fail. DfT’s own estimates that completing Phase 1 would represent value for money are rejected and the PAC has “little assurance” over the DfT’s calculations.
The PAC says it has repeatedly raised concerns about the Department’s and HS2 Ltd’s management of costs but costs have continued to rise. The DfT estimate to complete Phase 1 is now £45 billion to £54 billion (in 2019 prices). HS2 Ltd estimates that inflation since 2019 will add a further £8 billion to £10 billion to the cost.
HS2 Ltd has failed to constrain costs in its main works civils contracts in particular, despite this being an area the PAC flagged for attention in spring 2020. The committee says DfT and HS2 Ltd should spell out how they are now going to ensure that effective cost controls, oversight, transparency, design, and contracting are put in place so that cost overruns and delays will be brought under proper control.
Progress made in reviewing existing contracts to ensure that contractors are now incentivised to minimise costs is also to be reported. HS2 and the DfT might manage to comply – but it will be too little and too late.
Nick Barrett
Editor