Creative accounting

Creative accounting

Sir Jon Thompson’s recent appearance in front of the Transport Select Committee was almost as funny as it was extraordinary.

The HS2 Ltd executive chairman told the committee that the estimated cost for Phase 1 is between £49bn and £56.6bn at 2019 prices but it isn’t really because if you adjust for current prices it adds “somewhere between eight and 10 billion pounds”.

To put the rise in spend in context, in 2013 HS2 was roughly costed at a measly £37.5bn, though that was calculated at 2009 prices and for the whole network, including the now cancelled Birmingham to Manchester/Leeds route.

To the casual observer arriving at these costs and budgets where final numbers are not what they seem ( and are always going up) might prompt the question ‘what on earth is going on? I thought the UK lead the world in infrastructure projects?” We might well do in terms of the actual conception, construction and completion but, clearly, we are lacking any rigour when it comes to sharpening our pencils. The reason? Well, according to Sir Jon “this is a systemic problem. It’s not just about HS2, it’s about large projects that the Government funds.

“The budget needs to be set early on in order for an outline business case to be approved by the Government, sometimes by Parliament. “At that point, people think ‘okay the original estimate for Phase 1 was £30bn-something. “That is based on very, very immature data. You don’t have a design, you haven’t procured anything, there is no detail on which you can cost anything.”

The situation is then exacerbated by the Government’s longstanding policy of updating infrastructure estimates only at Spending Review points. As a result, as Sir Jon pointed out, official cost estimates are still being given at 2019 prices, and his organisation is still working with 2019 prices. “ All of the invoices we get, we have to then deflate backwards to 2019 prices even though we’re paying them at 2024 prices. And then we have to adjust the accounts to account for that, so it is a significant administrative faff to be frank.” Fair play to Sir John for his candour, but it does make you wonder we manage to build anything at all given the complexities involved.

Mind you, perhaps we shouldn’t complain. As an industry the plant hire business and equipment manufacturers have done fairly well out of HS2 and as our story on page 16 recounts, some players have actually tried to save money on their respective projects. Finning’s involvement with EKFB has resulted in savings of around £25m thanks to digitising its earthworks programme. Small beer in the now estimated £66.6bn total cost for HS2 but a significant sum all the same and an encouraging sign that costs don’t always have to go up!

Happy reading,

The CPN Team

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