All hail the bean counters
When I wrote parts 1 to 5 of this View from the Chair I was unaware that the House of Commons Committee of Public Accounts (CPA) had been undertaking its own investigation into the decision to cancel the northern legs of the planned HS2 network. This CPA’s report[1] provides some information on the Value for Money (VfM) considerations involved in the decision that further informs the discussion of this aspect that I presented in part 3 of the February 2024 series, and so I have decided to tack on this part 6 by way of an addendum.
The CPA’s report advises (in paragraph 3 on page 9) that a letter[2] had been received from the Department for Transport (DfT), signed by the Permanent Secretary acting in her capacity as Accounting Officer for the HS2 project. This letter sets out to demonstrate that the use of public funds to complete the construction of Phase 1 of HS2 satisfies the Government’s guidelines for managing public money.
I must admit that, in reading this letter, I couldn’t help but recall a blog[3] that I had posted in 2012 where I referred to a boast by a civil servant statistician, albeit a fictional one, that he would have “no difficulty in adjusting the calculations to produce a more congenial result”. I feel that the calculation of VfM in the DfT’s letter has indeed been presented to maximise the congeniality.
The Government’s decision on whether proceeding with Phase 1 represents value for money assumes the standpoint where we are now, rather than looking at the whole history of the project. So, the ‘sunk costs’ (i.e. the money spent to date on the project), estimated by the DfT to be £23 billion in 2019 prices, have been totally ignored in the determination of whether continuing with Phase 1 would be a good use of public money. Also, and probably more controversially, what the DfT have labelled ‘remediation costs’ – i.e. the £11 billion (2019 prices) estimated to be the further costs that would be incurred should Phase 1 be cancelled now – have been treated as a benefit in the Benefit Cost Ratio (BCR)[4]. Using this approach the DfT estimates that the BCR “for the continuation of Phase 1 between Euston and Curzon Street (including the link via Handsacre to the West Coast Main Line)” will be in the range 1.1 to 1.8.
The PAC appears to be fairly unimpressed by this calculation. In the Conclusions and recommendations section of the PAC’s report the return of £1.10 to £1.80 for every additional pound spent from now on is described as “low”[5] and the PAC comments that it has “very little assurance over the [DfT’s] calculations”. The report particularly notes as an uncertain assessment the counting of the remediation costs as a benefit[6].
Although the DfT has advanced this marginal analysis to justify the decision to complete Phase 1 of the HS2 project, its letter also makes an assessment of the likely overall BCR of Phase 1, taking account of the total costs, including sunk costs, and disregarding remediation costs, which it admits will be “significantly below 1” and thus represent poor value for money.
So, looking at the decision to complete Phase 1 from the standpoint of this total cost analysis, what it means is that the Government is planning to squander around a further £27 billion, or more by some estimates, into what is effectively a money sink, with no prospect of getting value for money overall.
Up the junction, again
In part 5 of this series I reported that, judging by their oral evidence given to the Commons Transport Committee, there appeared to be a difference of opinion between the current executive chairman of HS2 Ltd and a past technical director regarding the impact that the decision to cancel HS2 north of the West Midlands would have on the Handsacre Junction. The CPA’s report appears, in paragraph 17 on page 14, to offer a more definitive summary of the situation:
“HS2 Ltd described Handsacre junction as already being a choke point for the West Coast Main Line. It told us it was working with the Department to look at whether the junction needed to be bigger and what expansion might mean in terms of land and cost.”
Back of a fag packet planning for Euston
The CP946 command paper that was issued in support of the Prime Minister’s October announcement about the future of HS2 included a tacit acknowledgement that the redevelopment plans for Euston Station had turned out to be a total cock-up and that, four years and “two unaffordable designs” later, an acceptable approach to realising the HS2 central London terminus was still unachieved[7].
CP946 reaffirms the Government’s commitment to the Euston HS2 terminus and, as governments often do when they don’t know how to realise or finance a project, expresses the intention to strip HS2 Ltd of its responsibility for Euston and enlist the aid (and financial resources) of the private sector. However, since this plan is barely sketched out in CP946, and appears to be about as firm as a blancmange, I have studiously avoiding making any reference to it in this series so far.
Still, I feel that I should record that the PAC report notes that the Treasury had previously rejected the idea of private funding for Euston but now, according to the DfT, is “very supportive” of the idea. The PAC obviously has reservations, particularly in relation to the DfT’s inability to identify any firm timescales and the need for contracts for Old Oak Common to Euston tunnelling to be placed “in the coming months”. The PAC also stresses the need for “greater certainty” if private involvement is to be attracted and reports that the DfT recognises that “there was a lot of work to do” to develop “a coherent and plausible position to interface sensibly with the private sector”[8].
[1] PAC Tenth Report, op cit, paragraphs 21 to 25 on pages 15 and 16.
[1] HS2 and Euston: Tenth Report of Session 2023-24, House of Commons Public Accounts Committee, HC67, House of Commons, 7 February 2024 (https://committees.parliament.uk/publications/43184/documents/214904/default).
[2] Letter from Department for Transport to the Public Accounts Committee, originally dated 4 October 2023 but reissued on 14 November 2023 with a correction to the BCR range (https://committees.parliament.uk/publications/42178/documents/209581/default).
[3] HS2 and the environment, Peter Delow (blog), A work of fiction, 8 February 2012 (https://hs2andtheenvironment.wordpress.com/2012/09/08/a-work-of-fiction).
[4] This term is explained in part 3 of this January 2024 View from the Chair.
[5] The BCR range cited by the DfT actually straddles the low and medium VfM categories – see box 5.1 on page 25 of Value for Money: Framework, Moving Britain Ahead, Department for Transport, 2015 (https://assets.publishing.service.gov.uk/media/5f6237408fa8f5106d15640c/value-for-money-framework.pdf).
[6] PAC Tenth Report, op cit, paragraph 1 on page 5.
[7] Network North: Transforming British Transport, CP 946, Department for Transport, 4 October 2023, paragraphs 28 to32 on page 20 (https://assets.publishing.service.gov.uk/media/65290f86697260000dccf78b/network-north-transforming-british-transport-print-version.pdf)
[8] PAC Tenth Report, op cit, paragraphs 21 to 25 on pages 15 and 16.
