True cost of HS2 to soar by tens of billions of pounds because of inflation

Mark Harper, the Transport Secretary, is given a tour on Thursday of the first completed tunnel for HS2. The project's estimated costs could soon be about to rise
Mark Harper, the Transport Secretary, is given a tour on Thursday of the first completed tunnel for HS2. The project's estimated costs could soon be about to rise

The official estimate of the cost of HS2 will rise by tens of billions of pounds next year under a government review to take account of inflation.

Ministers will assess a business case by HS2 Ltd, the company in charge of the project, and recalculate its cost to factor in spiralling prices in the construction industry.

Rishi Sunak, the Prime Minister, is already under pressure from Conservative MPs to cut the second phase of HS2, which will link the West Midlands to Manchester.

MPs have argued that the total cost estimate, of between £72 billion and £98 billion, cannot be justified at a time of economic uncertainty in which the Government has increased the tax burden to the highest level in decades.

The estimate has been calculated in 2019 prices and does not factor in the cost of inflation over the last three years.

Unofficial calculations based on the CPI headline rate of inflation suggest the true cost will be well over £100 billion.

But an official government review of the prices will take into account inflation in the infrastructure construction sector, which was 18.1 per cent in September, according to the Office for National Statistics’s latest bulletin.

HS2 costs would rise 'very significantly'

Andrew Gilligan, a former Downing Street transport adviser, has said the costs of the project would rise “very significantly” when the figures are updated.

Even though construction of the second phase of HS2 has yet to begin, there are already concerns about the budget for the first phase, from London to the West Midlands.

A recent report by Jon Thompson, deputy chairman of HS2 Ltd, found there was only a 50 per cent chance of it hitting its upper target of £44.6 billion, including contingency funding, according to the Financial Times.

In a select committee appearance last month, Mark Thompson, HS2 Ltd’s chief executive, said conversations with the Department for Transport and the Treasury about updating the cost estimate had already begun.

"The events of the recent year … and keeping the numbers and reporting them back to 2019 every six months for the parliamentary report is an increasing challenge for us and the supply chain,” he told MPs.

“Of course, we have to de-inflate and reinflate those numbers as we go through.”

HS2 Ltd has been without a chairman since July 2021, after the planned resignation of Allan Cook.

The Telegraph has been told a new chairman will be named imminently after more than a year of delay, and that ministers hope the new appointee will control the project’s spiralling costs.

Despite opposition to the project from Tory MPs, Jeremy Hunt, the Chancellor, confirmed in his Autumn Statement on Nov 17 that it would continue as planned.

He said he would “not cut a penny from our capital budget” and would continue with major projects, including the rail line and the construction of the Sizewell C nuclear plant.

Bob Seely, the Conservative MP, said: “The case for HS2 gets worse and worse. Chancellor Jeremy Hunt and the Government are doing a valiant and important job trying to balance the books in very difficult circumstances.

"We can help them by making the case that HS2 should be cancelled. There has never been a credible case for HS2, and there certainly isn’t now. It has always been a political project which no one has had the courage to cancel. The more it costs, the greater the misuse of public money."

A Department for Transport spokesman said: “HS2 will bring transformational benefits and is currently supporting 29,000 jobs.

“We’re committed to delivering it as set out in the Integrated Rail Plan, and construction is under way and within budget.”

HS2 Ltd declined to comment.