It has been widely reported that Sir Jeremy Heywood is running his slide rule over HS2 reflecting concerns within Government that the budget for the project could be exceeded. The cost of HS2 has gradually risen over time, from £32.6 billion in January 2012 to £55 billion in November 2015, up from the previous estimate of £50 billion set two years earlier.
This increase is a particular issue, because the vast majority of the cost of building HS2 will fall on the taxpayer, with perhaps a proportion of those costs recouped on completion by the letting of a contract to operate the line. Therefore, it should be no surprise that a project of this magnitude should be subject to periodic review by one of our most senior mandarins.
The anti-HS2 campaigners have fought a strong battle based on the argument that HS2 is costing ten times more per kilometre than some global counterparts. The Daily Telegraph reported in November 2015, that the cost per kilometre of HS2 would be equivalent to £78.5 million, the highest of any of the major high speed rail countries. This compares to £7 million per kilometre of high speed track in Japan and £7.3 million per kilometre closer to home in France, both countries well known for their high speed train lines.
Proponents of HS2 argue that part of the cost differential lies in the fact that Europe has had high speed rail for decades, and is very good at building it. They cite the fact that the continental European network now totals some 7,000km (with a further 8,000km in the pipeline), whereas in the UK, we are relative novices with only around 100km of high speed track and we’ve had that for less than 10 years. There is also a suggestion that in building HS2, we are building a line with different characteristics to the standard European high speed line, with for example, more stations and tunnels, all of which add considerably to the final bill.
In truth, the reasons for the cost differential are rather more complicated than this, and they have serious ramifications which go way beyond just HS2. The fundamental truth is that the construction of major bits of infrastructure kit simply cost more to deliver in the UK. The reasons for this are manifold, and include the following:
- The story of UK infrastructure is one of significant under-investment, and that means when we do start to build more infrastructure, we have to climb something of a learning curve.
- Our “stop-start” approach to building infrastructure, which hinders capacity management.
- A serious skills deficit – we simply do not produce enough engineering graduates and apprentices and that in turn drives cost inflation.
- The UK is more densely populated country than most of Europe, and this is then compounded by higher land costs – it has to be cheaper to build a railway line on agricultural land than it is to build it through the Chilterns.
- Planning and regulatory compliance takes longer in the UK with longer planning horizons, more onerous consultation and compensation arrangements than in many parts of the world – just look at the HS2 Hybrid Bill going through Parliament now.
- Differences in our approach to specifying, procuring, and managing contracts when compared with many other countries.
To do justice to this list would require a great deal more space than is available here – suffice to say there are a host of complex and interconnected reasons, many of which have been well documented (for example Infrastructure UK’s Infrastructure Cost Review).
So why is the news of Sir Jeremy Heywood’s review so important? In short, the cost of building the UK’s infrastructure is too high, and it needs to come down. The 2016 National Infrastructure Delivery Plan outlines some £483 billion of investment in over 600 infrastructure projects and programmes to 2020-21 and beyond. This includes many projects in energy, transport, communications, water and other key sectors which are critical to the growth of our economy and our national competitiveness. They include Crossrail, Hinkley Point, Thames Tideway, the development of major strategic sites, new science and research facilities – all essential investments to support the UK economy. These projects are urgently needed, but we can’t afford to pay a penny more than the £483 billion currently budgeted.
Enter stage right, the Construction Leadership Council (‘CLC’). Formed in 2013, the CLC is a partnership between the construction industry and the Government with a mandate to identify and deliver actions supporting a 33% reduction in both the initial cost of construction and the whole life cost of assets, and a 50% reduction in the overall time from inception to completion for new assets by 2025. Work is already underway, with a report on the construction labour market due to be published very soon.
Regrettably, 2025 is going to be too late for HS2 and many of the projects already identified in the National Infrastructure Delivery Plan. But if successful, the CLC’s work could prove to be an essential step in building the UK’s long term productivity through a more cost effective approach to infrastructure delivery. For this reason we should all be following the work of the CLC more closely.