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HS2: Overoptimism and unrealistic planning

06 October, 2023
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Over the last few weeks, HS2 has been in the news over speculation that Prime Minister Rishi Sunak was considering axing the Birmingham to Manchester leg of the high-speed rail link due to spiralling costs.

Then, this week at the Conservative Party conference, he confirmed the rumours, announcing that HS2 will end in Birmingham rather than continuing up to Manchester.

The decision has been met with criticism and has been branded as a ‘betrayal of the north’.

Mr Sunak said that scrapping the Manchester leg will free up £36bn and this money will instead be spent on “"hundreds of new transport projects in the North and the Midlands, and across the country" in a project called Network North.

Regional leaders including Greater Manchester Mayor Andy Burnham and West Yorkshire Mayor Tracy Brabin are against the decision.

This decision has been made due to escalating costs which Mr Sunak said have “escalated far beyond what anyone thought at the beginning”. This is a problem turnaround professional know a lot about, with companies often digging themselves into a financial hole due to overoptimism on costs and unrealistic planning.

What are the costs involved?

When the HS2 project was given the go-ahead by the government, the whole network was projected to cost £32.7bn, including a north-eastern leg going to Leeds. In the latest Department for Transport update published in June 2023, it said the cost could reach £71bn, at 2019 prices and without any north-eastern leg. However, given the Government’s commitment to a line to the east Midlands, and inflation since 2019, an estimated cost of about £100bn at 2023 prices was projected.

Chancellor Jeremy Hunt recently said that costs are “getting totally out of control” and Whitehall insiders think HS2’s management have been behaving “like kids with the golden credit card”.

Why have costs climbed so much?

There are, it seems, two main reasons costs are coming in so much higher than was budgeted.

1. An unrealistic original budget

2. Project mismanagement

Unrealistic original budget

From the beginning, it seems that the whole project has been biased towards overoptimism on costs.

HS2’s spending includes everything from planning processes, property prices, compensation and environmental mitigations. On a small island, these costs have mounted, especially when tracks and stations are being built into the heart of big cities, as well as through expensive marginal counties.

In the past, HS2’s management have also blamed spiralling costs on planners for failing to anticipate the challenges of passing through difficult ground conditions such as porous salt-mines, chalky rubble, and ancient woodlands.

The costs to acquire land have also proven a big challenge with legal issues complicating the compulsory purchase of several key sites including at Euston. In 2013 the entire land estimate was £2.7bn but HS2 faced a £500m lawsuit by the owner of Two Towers at Euston over the value of its Euston Estate. The case was settled out of court however it is known that HS2 spent £1.5bn on property at Euston alone. In late 2019 it was revealed that cost estimates for land would be around £4.96bn. By 2020, the land and property costs already stood at £3.6bn, with around 75% of land purchased and more still to acquire.

Project mismanagement

Project mismanagement has also been a regular criticism of HS2 over the years, backed up by various independent reviews.

In July 2023, the Infrastructure and Projects Authority, the Government’s Infrastructure watchdog assigned a “red” rating to the plans for the construction for the first two phases of HS2, meaning that “successful delivery of the project appears to be unachievable”. Its report stated that there are “major issues” which “do not appear to be manageable or resolvable”.

Cited as a prime example of gross mismanagement and irresponsible financial planning is the Euston station works halt. In March 2023, work at London Euston was paused for two years due to costs. Critics say that this is just one example of the persistent delays, skyrocketing costs, and lack of project oversight have eroded confidence in the project’s viability.

What has HS2’s management struggled so much?

Large projects like HS2 are hugely difficult to manage effectively and require careful planning, solid governance and detailed risk management. With the project kicking off in 2009, at its completion it will have spanned more than 30 years, and the project’s managers, top executives, ministers, Prime Ministers and civil servants overseeing and running the project will change multiple times. Project management and governance must therefore be robust enough to withstand these changes and milestones should be set for individuals in their roles rather than far enough off for them to be someone else’s problem when the job is taken over.

In addition, it has been widely known that there is no real budget for HS2. Whatever it costs, successful governments agreed to pay. This attitude, it seems, stops with Rishi Sunak’s government.

Amid widespread criticism, in his first interview since his speech to the Conservative Party conference, Mr Sunak declined to apologise for the decision, saying that he sometimes needed to take “decisions that aren’t always easy”. Taking hard, often unpopular, decisions is something turnaround professionals know all too much about and if HS2 were a private company venture, this decision might have been taken many years previously.

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116

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