The Treasury is facing the unenviable task of plugging a £33bn deficit after ministers admitted the latest HS2 reset had pushed the bill for the troubled rail project to a staggering £102bn, leaving the chancellor with no choice but to raid other budgets, raise taxes, or both.
Analysis of the Department for Transport’s updated plans for the London-to-Birmingham line, published after Transport Secretary Heidi Alexander’s statement to the Commons on Tuesday, suggests that Whitehall will need to find between £18bn and £33bn of extra public money before the end of the current spending review period. For Britain’s small and medium-sized businesses, many of whom were promised that HS2 would unlock regional growth and fast-track supply chains, it’s another reminder that the country’s record for major infrastructure delivery remains, to put it mildly, dubious.
Alexander did not mince his words in the shipping box. He called the line, originally intended to take passengers between London Euston and central Birmingham in less than 50 minutes, “over-thought folly” and accused his Conservative predecessors of an unnecessary gold-refining scheme that has already swallowed £44bn of taxpayers’ money in its 17 years of existence. According to an official review tabled in Parliament, the first trains won’t be running now until 2036 at the earliest, with services to central London delayed until at least 2040, meaning construction will be over a quarter of a century old by the time work is complete.
It is the sixth major reset HS2 has endured in just 13 years. The latest comes after the Stewart Review, commissioned by Labor shortly after it came into government in 2024, lifted the lid on what the author described as “numerous failings” within the Department for Transport and the arms giant HS2 Ltd, where managers were allowed to “go nuts”. The Institution of Civil Engineers’ Stewart Review painted a grim picture of weak governance, optimism bias and a procurement strategy that left contractors with too few risks, the kind of failure any seasoned SME owner can see as a threat to their business.
The numbers tell their own sad story. Officials now expect the line to cost up to £36bn more than the previous official estimate, on top of £25bn of extra taxpayers’ money already earmarked for last year’s financial performance review. That leaves between £18bn and £33bn of unfunded spending sitting badly on the Treasury’s books, money that will have to come from new ways of tax and spending, from cuts to other cash-strapped departments, or, more likely, from a combination of the two. Sources with knowledge of the matter told Business Matters that the ministers decided that the loan would be increased to the extent necessary to close the gap, fearing to violate the government’s self-imposed rules.
Meanwhile, Whitehall insists that the current Treasury envelope, which covers all public spending up to 2029-30, captures every penny HS2 needs this decade. The pain will be felt in the next spending review, when chancellor Rachel Reeves – or her successor – will have to decide what other priorities the area offers. Whether that means defunding schools, hospitals and police, or whether the burden falls on business and household taxes, will be the defining fiscal battle of the late 2020s. Ms Reeves previously hoped to strengthen her growth strategy in a £92bn investment programme, much of which is now at risk of being eclipsed by HS2’s desperate need for funding.
It also raises uncomfortable questions about the reliability of expenditure figures presented to Parliament over the past decade. The same Whitehall machinery that signed off on the previous estimates is now telling business leaders to take the new £102bn estimate on trust, as transport experts begin to whisper that the bill could eventually rise significantly. Business Matters recently reported that ministers were considering slowing down HS2 trains in a bid to claw back billions, a move that critics say undermines the original premise of the project in the first place.
The political situation is not very good. The line was originally conceived as a Y-shaped network connecting London to both Manchester and Leeds via Birmingham. Boris Johnson cut the east leg to Leeds in 2021; his successor Rishi Sunak then snapped up the Manchester arm two years later. Each cut was sold as savings, yet the debt continued to mount. As one senior official with experience of past restructuring put it earlier this year, Conservative ministers wasted billions on a project that was never properly managed – a charge the party’s front bench is now finding difficult to refute.
For British SMEs, the results are clear. Construction supply chains in the Midlands and on the road have been at the forefront of the first commitment to standardization for the better part of two decades. Manufacturers, engineering contractors and specialist contractors for phase two have built up order books with the assumption that phase two, at least, will arrive in Crewe. Most of those orders have since evaporated. Meanwhile the wider business community is being asked to believe that the same Treasury now facing a £33bn deficit on one project can still be trusted to underwrite a long-term renewal of the region’s infrastructure.
The lesson, however painful, is one that any owner-managed business learns in its first decade: budget overruns of this scale do not happen by chance. They were initially driven by greedy motives, increased scope, weak trade practices and political interference. HS2 had four at industrial rates. Until Westminster develops the institutional muscle to deliver major projects on time and on budget, British business will continue to pay the price, both directly, through reduced taxes and investment, and indirectly, through a global reputation for infrastructure delivery that is fast becoming a cautionary tale.
