High Speed 2 (Economic Affairs Committee Report)

Baroness Kramer Excerpts

Thursday 23rd January 2020 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I will try and keep us in sync if I can.

It will be no surprise to anyone in this House that I am a fulsome supporter of the full HS2—not just London to Birmingham but the two parts of the “Y” going on to Leeds and Manchester. I am not going to reiterate the arguments made so well by the noble Lord, Lord Adonis, but we are out of capacity. We have a growing demand and the only way we can meet it with any sense is to create a new line, as advocated by the noble Lord, Lord Bradshaw, that frees up the existing lines for regional and commuter services, allowing them to be reshaped, modernised and advanced to meet the demands of the day.

However, I also agree that we need east-west capacity, and I very much resent the two projects being treated as if you can choose one but not the other. We should have put these projects in the ground 20 years ago, and at that time we could have sequenced them, but we did not have the level of demand that we are trying to deal with today. Today we cannot do that. We are out of time and out of rail. We must go ahead with both projects and find a way to do them. If not, we undermine the future economic growth of this country that we are all committed to and all want to see.

There are so many arguments for the positives of HS2, and they have been well made. I want to address something slightly different: our inability, within the context of government, to manage, communicate about and supervise large-scale infrastructure projects, of which HS2 is one, but not the only, prime example. Much of the opposition to HS2 comes from a lack of trust; every time someone receives a new piece of information, the cost of the project goes up. Turn around and it has gone up again. These are incredibly complicated, difficult projects. There must be transparency from the beginning, articulating where we can be confident of the actual cost and where we do not know and are estimating, and the information needs to flow regularly and freely, so that people do not feel that they have been deceived on day one by a deliberate understating of cost. We know that the Treasury tends to drive departments to do that. It is time that the Treasury changed and appreciated genuine transparency.

The cost-benefit analysis scheme that we use, which was described by the noble Lord, Lord Bradshaw, is so completely unfit for purpose that it tells us almost nothing. Many people assume that, when I say that, I mean that it underestimates cost, but the real problem is that it completely underestimates benefits on large, complex projects, particularly phased projects. When, as a Minister in the department, I tried to break down the algorithms—and I recommend this to the Minister—I realised that the full cost of both phases of HS2 goes into the calculation, but the benefits are limited to a seven-year calculation on phase 1. That is a very limited calculation, because most of the regeneration is excluded, with only two years of phase 2. The algorithm does not look at the project as two projects combined; it counts the seven-year period allowed for benefit from the date that phase 1 opens. That is completely insane. We went through an exercise while I was there of splitting the two projects apart and even limiting the benefit to seven years—seven years for a project of this scale. Suddenly the cost-benefit analysis easily exceeded 5:1. My guess is that, if this is done properly, we are looking at very different numbers.

If noble Lords take any major infrastructure project that has been built in this country and apply that algorithm not to the estimated cost at the time the decision was made but to the genuine cost that was loaded on and became part of that project, every single one of them would show a seriously negative number in the benefit-cost analysis. We are dealing with analysis that is completely unfit for purpose. Civil servants may argue—and it is entirely true—that this is just one of many tools that are used to try to open up and elaborate thinking around a project, but that is not the way that the measure is treated or the way that it is communicated.

I am concerned that, as we deal with these projects, we have to completely upscale the way in which we manage them. We need skills all the way through the system. We certainly need them at the top and, basically, at every level. We really lack the necessary infrastructure skills. I also want management in any of these schemes not to feel afraid of telling the truth to politicians and the public about the actual costs and changes that they experience. The absolute shocker with Crossrail, for example, was that few people had any idea that the project was completely off in terms of budget and timing until literally weeks before it was due to open. We cannot sustain a system where senior people within these companies feel so pressured that they do not speak out when they need to .

I want to use my last moments here to give thanks and ask for additional support for the very brave whistleblowers on HS2—there have been quite a number—who provided information very early on that made it clear that this project was going to cost significantly more and there were real problems in the way that it was being developed and managed. I will name one, because I have his permission: Douglas Thornton, who recognised that the prices that had to be paid for property would be well in excess of what was budgeted, that HS2 itself lacked the skill base in order to manage much of that process and that some of its contractors—only some—found it easy to take advantage because of the lack of resource and senior management’s fear of telling us the truth. We must change that and restore trust.

But it will then be incumbent on the Government and on us in this place not suddenly to start treating people who tell us the truth as if they had betrayed us because the information they give us is new—because costs have increased and the project has complexities that were not understood earlier. We must mature, and our management and the managers of these projects must mature.