Oakervee report recommends HS2 goes ahead

Douglas Oakervee has published his review of HS2.

The Oakervee Review into HS2 has finally been published by the Department for Transport after it was delayed by the general election. It recommends that, on balance, Ministers should proceed with the HS2 project, subject to various qualifications.

Douglas Oakervee’s brief was to “assemble and test all the existing evidence in order to allow the Prime Minister, the Secretary of State for Transport and the government to make properly-informed decisions on the future of Phases 1 and 2 of the project, including the estimated cost and schedule position.”

The panel under Oakervee consisted of Lord Tony Berkeley as deputy chair along with John Cridland, Michèle Dix, Stephen Glaister, Patrick Harley, Sir Peter Hendy, Andrew Sentance, Andy Street and Tony Travers.

Lord Berkeley.

There is one telling note in his foreword to the report: “All the panel members, with the exception of the Deputy Chair, have confirmed they support the approach taken in the report.”  Tony Berkeley had been critical of the review and had even requested that his name be taken off the final report as he disagreed with its findings.

The 130-page report covers a lot of ground.  In his review, Douglas Oakervee was asked to look at:

  • The case for high speed rail as part of the GB rail network (including how it has evolved over time);
  • How HS2, as currently proposed, links the existing GB rail network and other transport systems, including those currently being proposed by Midlands Connect and Transport for the North and Network Rail’s Enhancements Programme;
  • The places on the GB rail network that are not on the HS2 network but are nonetheless potentially affected (negativity or positively) by a new line;
  • The environmental case for and against HS2, particularly in light of the government’s recent commitment to net-zero carbon emissions by 2050 and the impact of the construction of HS2 itself on the environment;
  • The design and specification of the project;
  • The impact of the construction and operation of HS2 on communities and individuals;
  • The capability of High Speed Two Limited (HS2 Ltd) as a company to deliver the project, including whether appropriate levels of governance, oversight and transparency are in place;
  • How a new national high-speed rail line could benefit the economy of the UK;
  • How the UK government currently appraises large transport schemes;
  • The costs of the project and the certainty of current estimates;
  • The impact of cancelling part or all of the scheme, including the impact on the UK construction industry, rail supply chain and confidence in UK infrastructure;
  • Alternative schemes for railway investment and how HS2 and other proposed rail investments fit into a robust plan for the GB rail system as a whole.

The whole process was conducted over a short space of time. Douglas Oakervee was asked to lead the review shortly after Boris Johnson became Prime Minister on 24 July 2020 and a draft was shown to the DfT on 7 November. As a result of that compressed timescale, the review “faced a major challenge to undertake a deep examination of all the areas included in its Terms of Reference”.

Most of the evidence-gathering was conducted during September 2020. Douglas Oakervee admits that, in respect of costs, although he did not have enough the resources or the time to develop its own robust, bottom-up estimate of costs, it used, as a starting point, the cost estimates provided in the Chairman’s Stocktake. These were cross-referenced with benchmarking done by HS2 Ltd and the DfT and a cost estimate developed by an external consultant.

The review also considered the following key points:

  • The impact of cancelling HS2 would be significant. Costs incurred amount to approximately £9 billion, though some of these costs may be recovered with around £2bn to £3bn of land and property costs potentially recoverable, and additional direct costs of cancelling the project estimated at around £2.5 billion to £3.6 billion. There would also be significant detrimental consequences for the supply chain and the fragile UK construction industry and confidence if HS2 was cancelled;
  • The full network is needed to realise the benefits of the investment in HS2 because Phase One as a standalone scheme makes little sense;
  • Substantial changes to specifications and design requirements, which could reduce costs on Phase One, would require changing the Phase One Act (The High Speed Rail (London – West Midlands) Act 2017). Amending the Phase One Act would substantially delay the opening of Phase One, causing further uncertainty and blight to local communities on the route;
  • HS2 could help deliver the government’s commitment to bring all greenhouse gas emissions to net zero by 2050. This net-zero commitment was only made in June 2019 – well after HS2 was initially proposed and indeed after the Phase One Act achieved Royal Assent in 2017.
The Oakervee Review recommended that HS2 should go ahead in its entirety, including Phase 2.

The Review’s overall conclusion was: “The latest economic appraisal indicates that the net cost to the transport budget in proceeding with HS2 is around £62bn to £69bn (present values, 2015 prices). In providing its view to government, the Review considers that, on balance, Ministers should proceed with the HS2 project, subject to the following conclusions and a number of qualifications.”

As would be expected, the rest of the lengthy report goes into those conclusions and qualifications in great detail.  However, the 62nd and final conclusion was:

“The Review strongly advises against cancelling the scheme.”

Conclusions

All 62 conclusions, and the sections of the report in which they occur, are listed below:

          Section 5 – Review of the objectives for HS2

  1. Notwithstanding changes that have occurred since the 2009 Network Rail study, its principal conclusion – and original rationale for HS2 – still holds: there is a need for greater capacity (both more trains on tracks and more seats on trains) and reliability on the GB rail network. The primary need is for capacity; speed although an important factor in economic benefits should not be in and of itself the primary driver of decision making. HS2 should be thought about as a new railway that enables fast inter-city services to be on segregated lines to free up capacity for commuter and freight services – and should be designed, built and operated with this in mind. It is essential that all future analysis for the business case for HS2 captures the latest evidence and projections for crowding on the conventional network, with the projections accounting for the risks that exist around future travel demand.
  2. Inter-city connectivity is important, but so too is regional and commuter connectivity. HS2 clearly delivers inter-city improvements, but also frees capacity for regional and commuter services to be improved. There is no overarching strategy and analysis to optimise the allocation of released capacity on the basis of the project’s objectives. Given that this is a core rationale for the HS2 scheme, much more work needs to be done jointly between HS2 Ltd, the DfT, Network Rail and the Shadow Operator in an integrated GB rail plan to maximise these benefits and articulate them clearly. HS2 should be planned as part of the national rail network. This includes links to existing railways but also to new investment proposals from Midlands Connect and Transport for the North and Network Rail’s Enhancements Programme.
  3. Given that supporting regional economic growth and a more balanced UK economy is a core objective of HS2, further work should be done by HS2 Ltd, the DfT and wider government to understand these impacts. It has been hard for this Review to assess the likely size of impacts on regional economic growth that will result from HS2 or other transport improvements.
  4. HS2 can be part of transformational economic change, but only if properly integrated with other transport strategies, especially those seeking to improve inter-city and intra-regional transport, and also with national, regional and local growth strategies. Transport investment alone will not ‘rebalance’ the UK economy.
  5. The government’s 2050 target has placed a new emphasis on the design, build and operation of the HS2 network. The ability to reduce carbon emissions in the construction of Phase One may be limited so focus should be placed on improving plans for Phase Two in this regard in particular. HS2 Ltd should look to drive innovation in construction and delivery of the project to reduce its forecast greenhouse gas emissions. Over the longer term HS2 should form part of an integrated government strategy to encourage people to shift to greener transport modes.

    Section 6 – The HS2 design and route

  6. On balance the Review considered that reducing the specifications of HS2 Phase One should be looked at, but only within the limits of the Phase One Act powers. This is due to the significant costs of making changes to these powers, both in terms of time and monetary costs, and the benefits of future-proofing the scheme for future service enhancements.
  7. The specification for HS2 is ambitious compared to current international experience. A more prudent assumption of 14tph should be used as a central planning assumption for train service planning, futureproofing for 16tph, and future business cases should be updated accordingly.
  8. The Review recognised the impact of HS2 on woodland, landscape, biodiversity and more broadly on built and natural environments. Given the duration of the HS2 project, such impacts, along with any accompanying mitigation and compensatory measures, need to be kept under review.
  9. The Review recognised the impact on communities of construction of HS2, and HS2 Ltd should continue to mitigate these. There are opportunities in the design of Phase 2b to avoid, reduce or mitigate negative impacts.
  10. The government should recommit to the full Y-shaped network, linking Phase One to Manchester, the East Midlands, Yorkshire, and beyond. It only makes sense to do Phase One if continuing with northern phases to deliver transformational benefits to the North of England and Midlands.
  11. Transport for the North and Midlands Connect, together with Network Rail, HS2 Ltd and the DfT, should develop a plan to maximise the benefits of Phase 2b and ensure an optimised delivery model. This could be the first step in an integrated rail plan for the GB rail network. This Review recommends a further study of circa 6 months of Phase 2b scope in the context of Midlands Engine Rail and NPR proposals. The study should consider the appropriate mix of new high speed line and upgrades of conventional network to improve reliability and service frequency, and the sequencing of these to deliver service improvements as soon as possible – before HS2 Ltd’s view of opening Phase 2b as currently designed in 2035-2040. The budget allocated towards Phase 2b, along with other relevant funding allocations, should be used in developing an integrated railway plan alongside an integrated railway investment programme for the Midlands and the North of England.
  12. Preparation of materials for the Phase 2b Bill as currently designed should be paused and await the outcome of this study. Given experience on Phase One, having smaller Bills/phases may be better to allow easier scrutiny of proposals in Parliament and faster construction.
  13. The Review recommends removing the Handsacre connection from HS2. At the same time, Network Rail and the DfT should maintain or improve services on the WCML to Stoke-on-Trent, Stafford and Macclesfield. The Review considers that the Handsacre connection would only be needed if it was decided not to proceed with Phase 2a to Crewe.
  14. The DfT should consider making passive provision for a future HS2 station near to Calvert. There could be merit in developing a HS2 station near Calvert if local plans support a significant residential and commercial development in this region, and if there is passenger demand to justify the cost of developing a station here.

    Section 7 – Cost and schedule

  15. Phase One: The Review has examined HS2 Ltd cost estimates. There is considerable risk that the prices for Phase One will not remain at the levels set out in the Chairman’s Stocktake unless rigorous cost controls are put in place. Cost controls will be key to ensuring that costs remain at or below the levels set out in the Chairman’s Stocktake.
  16. Phase Two: There is far less certainty on the costs and schedule for Phase Two. It would be unwise to commit a specific cost number for Phase Two given the choices on Phase 2b route that are still to be made, the design maturity and the level of ground investigations. Accordingly, costs and schedule for Phase Two should continue to be expressed as a range. For Phase Two cost estimates, higher contingency levels are appropriate including in order to avoid the issues that Phase One has faced. As described in section 6 above, preparations of materials for the Phase 2b Bill as currently designed should be paused.
  17. While the Review has not been able to develop its own bottom-up estimate of costs on the HS2 project, it considers that costs on the HS2 project could be around 15 to 20 per cent higher than those set out in the Chairman’s Stocktake. Critically, this assumes, amongst other things, that Phase 2b proceeds as currently planned – as indicated at conclusion 23 in section 8 below, there are real opportunities to reduce costs on Phase 2b by removing gold-plating including through alignment redesign.
  18. Given the revised schedule forecast for Phase One and Phase 2a set out in the Chairman’s Stocktake, the government should consider merging the construction of Phase 2a with that of Phase One.
  19. HS2 Ltd and the DfT need to deploy benchmarking more consistently and more uniformly. The DfT, with the support of the IPA, should build on the useful multi-project benchmark which the DfT has developed. Any benchmarking should be UK-specific where relevant, but look to include and learn from international examples as well. As part of this benchmarking work, there is a need to monitor prices on the market to check that cost estimates align with current market prices.
  20. HS2 Ltd and Network Rail to engage with each other to ensure that cost estimating methodologies are used in a consistent fashion including on an ongoing basis for future projects. There is an opportunity to learn from each other.
  21. Given the cost position outlined in this section, HS2 as currently scoped is not affordable within its present funding envelope which was set in 2013 and revised in 2015. As previously indicated at conclusion 10 above, the Review considers that the government should commit to the full Y-shaped network. If the government commits to the full Y-shaped network, it will need to commit significant additional funding to make the scheme affordable including providing a realistic funding envelope for Phase Two. Before issuing NtP, a revised funding envelope should be set for Phase One – the funding envelope should have appropriate levels of contingency, to be held by the DfT/HM Treasury, and should be realistic.
  22. There would be serious consequences for the supply chain, the fragile UK construction industry and confidence in UK infrastructure planning if HS2 were cancelled at this late stage. Cancellation of HS2 could also hinder attempts to create an economic transformation across the UK.

    Section 8 – Contracting and HS2 specifications

  23. On balance, the Review considered that reducing the specifications of HS2 Phase One should continue to be looked at, but only within the limits of the Phase One Act powers. This is due to the significant costs of making changes to these powers both in terms of time and monetary costs, and the benefits of future-proofing the scheme for future service enhancements. The next stage of design development for Phases One and 2a should look at efficient and economic design standards, and this should form part of the work to finalise detailed designs and prices. HS2 Ltd should thoroughly examine what gold-plating of standards can be removed on Phase 2b to reduce costs, including alignment redesign if considered appropriate.
  24. There needs to be a full review of the milestones within the Phase One Main Works Civils contracts with a view to keeping costs down by allowing the schedule to flex.
  25. Ahead of issuing NtP for Phase One, the government should ensure that HS2 Ltd achieves a satisfactory position with each of the Main Works Civils contractors in order to obtain acceptable Stage 2 prices and a reasonable level of value engineering. If HS2 Ltd cannot achieve a satisfactory position with the Main Works Civils contractors, then HS2 Ltd, subject to further discussions with the DfT and HM Treasury, may have to consider re-procuring some or all of these contracts.
  26. Lessons from the Phase One Main Works Civils contracts, and indeed from Crossrail and other major transport projects, need to be learnt and applied by HS2 Ltd. Revised procurement and contracting models should be considered, especially for any future HS2 construction contracts including on Phase 2a. In any future procurements, HS2 Ltd needs to consider how it can ensure: (i) an optimised approach to risk allocation is used; (ii) there is robust management of interfaces on the project; and (iii) efficient designs are developed.
  27. Within the constraints of the Phase 2a Bill, HS2 Ltd and the DfT should investigate the potential to optimise the design and reduce costs on Phase 2a.

    Section 9 – HS2 stations

  28. Work needs to continue to ensure that commercial opportunities are maximised at HS2 Phase One stations.
  29. HS2 Ltd and the DfT should continue, where feasible and appropriate, to engage with the private sector, in association with local government, to develop HS2 stations. There may be opportunities for local authorities or combined authorities, in partnership with the private sector, to take on HS2 Ltd’s role in funding and developing stations. If the current arrangements for station development are left in place, there is a significant risk that economic value from HS2 station developments will not be maximised. A bespoke, specific commercial model may need to be developed to deliver specific elements in and around stations.
  30. There needs to further consideration around whether and how value created in land close to HS2 stations could be captured.
  31. Governance arrangements for the development of the HS2 stations need to be streamlined with HS2 stations closely integrated with the existing transport network and the local area.
  32. Until the issues set out in conclusions 28 to 31 above are sufficiently progressed, procurements for the development of HS2 stations should be paused.
  33. The existing design for the HS2 station at Euston is not satisfactory. For the future Euston station, there should be a study led by the SRO, looking into the efficiency of the future station as a whole including considering options to simplify the HS2 approach to Euston station.
  34. There needs to be a single plan for the overall Euston project. In order to help deliver this single Euston plan, one organisation should bring together all the stakeholders and be responsible for the overall development and governance of the Euston project. Given the complexity of the Euston project, this organisation should not be HS2 Ltd.

    Section 10 – Capability, governance and oversight

  35. Milestones to be set against which HS2 Ltd’s management should be held to account in respect of their period in office.
  36. While HS2 Ltd’s board and corporate governance appear to be nearing substantial readiness for the next stage of the HS2 project, additional non-executive directors should be appointed. However, the board and the executive must not be complacent and will need to consider what further steps should be taken to improve the Company’s performance.
  37. HS2 Ltd’s governance arrangements need to evolve and strengthen to reflect the project’s complexity and scale as the project moves through its various phases in the coming decades.
  38. Systems integration in HS2 Ltd needs to be strengthened now and maintained throughout the life of the project and beyond into asset management. It also needs to be ensured there is a single point of accountability for systems integration. This is a vital lesson from Crossrail. Clear accountability for systems integration, along with an authority overseeing integration, will be key to ensuring HS2 services commence in a timely and smooth fashion.
  39. HS2 Ltd should work closely with the Shadow Operator and Network Rail to ensure its decisions consider and reflect the operational perspectives of both organisations.
  40. Going forward, HS2 Ltd needs to demonstrate improvements, to the satisfaction of HS2 Ltd’s board, the DfT and HM Treasury, in cost estimation, management and control.
  41. Going forward, HS2 Ltd needs to demonstrate improvements in capability, to the satisfaction of both HS2 Ltd’s board and the DfT, in a number of key areas including commercial strategy, design management and construction management.
  42. Going forward, HS2 Ltd needs to demonstrate improvements, to the satisfaction of both HS2 Ltd’s board and the DfT in stakeholder engagement. The government should appoint non-executive directors to the HS2 Ltd board. The government needs to ensure it has clear oversight into what is happening on the project and proper control over costs.
  43. The DfT should draw on the expertise of a group of independent experts in reviewing HS2 Ltd’s performance.
  44. As part of the decision around Notice to Proceed, the DfT should set out its plan for improving how it functions as a sponsor, client, funder and shareholder including how it will improve its internal expertise in a number of key areas.
  45. The overall governance of the HS2 project, including the future planning of Phase Two along with the delivery and operation of HS2, should be reframed in light of the recommendations of the Williams Review, including any new body or bodies that are established by government following the Williams Review.
  46. On a regular basis, the Secretary of State for Transport should, upon receipt of a report from the HS2 Ltd Chair, advise Parliament on the project’s progress especially in relation to costs.
  47. The economic case does not currently fully align with the strategic case. Economic rebalancing, one of the primary drivers in the strategic case for HS2, is not currently reflected in the economic case.

    Section 11 – Economic assessment of HS2

  48. Further work is needed on understanding the potential impact of HS2 on the number and location of homes and jobs. Work is needed by the DfT and HS2 Ltd for future HS2 business cases to review and quantify the level 3 impacts in the benefit-cost ratio given the prominence of these impacts in the strategic case.
  49. Further work is needed on understanding why reducing crowding doesn’t play a greater role in the quantified benefits.
  50. There are impacts that are currently not quantified that are important to consider alongside the monetised benefit-cost ratio. This includes the potential transformational benefits that HS2 could unlock through changing land-use as well as the adverse environmental impacts from construction and the permanent land required for the railway.
  51. The net economic cost to the transport budget, as valued by DfT TAG, of HS2 has increased from £40bn to £62-69bn (present values, 2015 prices).
  52. The latest results indicate that the full Y-shaped HS2 network represents ’low-medium’ value for money, using DfT TAG, when capturing the cost estimates in the Chairman’s stocktake and benefits under fixed landuse.
  53. The evidence is clear that the full network is needed to realise the highest value for money economic return on the investment of HS2. Phase One as a standalone scheme does not represent value for money, nor does building Phase Two without building Phase One.
  54. If an integrated rail plan and investment programme for the Midlands and the North of England is developed (see conclusion 11 above), the economic appraisal of this integrated rail plan and investment programme should be assessed in addition to individual projects and phases of schemes.
  55. The demand sensitivity analysis suggests that the full HS2 network has a benefit-cost ratio range of 1.0 to 2.1 and represents low-high value for money. Extending the appraisal period from 60 to 100 years after scheme opening has a material impact on improving the value for money.
  56. The benefit-cost ratio could be improved by removing the Handsacre connection and reducing the proposed frequency of HS2 services from 17 to 16tph.
  57. Given the recommendation in section 6, a frequency of 14tph, with passive provision for 16tph, needs to be considered in future business case work. Initial analysis suggests that a move below 16tph would likely have a marginal negative impact on the benefit-cost ratio. However, the train service offer in this lower-frequency analysis has not been optimised. Further work is needed by the DfT, HS2 Ltd and Network Rail to ascertain the most suitable 14tph HS2 train service specification.
  58. Before issuing NtP: (i) an updated business case for Phase One, approved by HMT, should be published; and (ii) the DfT should update and publish a revised business case for the project as a whole. This should include the latest cost and benefits for the project.
  59. Euston station is an important part of realising the benefits of HS2, and the section from Old Oak Common to Euston should not be removed from the scope of the project. However, it is vital to get the Euston project right. Old Oak Common should act as the temporary London terminus for HS2 services until Euston station is complete, so time taken to get Euston right does not delay the start of HS2 services.

    Section 12 – Alternative Options

  60. It is now hard to stop Phase One and start HS2 in the North of England without years of blight given that powers have been taken for Phase One, a significant amount of work has been carried out on Phase One, and given the relative immaturity of northern sections and regional schemes. The quickest way to deliver long-distance inter-city connectivity to the Midlands and the North of England is to continue with Phase One, and to fully commit to subsequent phases.
  61. There are no-shovel ready alternative investments in the existing network that are available: if HS2 were to be cancelled, many years of planning work would be required to identify, design and develop new proposals. The upgrading of existing lines would also come at a high passenger cost with significant disruption.
  62. The Review strongly advises against cancelling the scheme.

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