High Speed Rail

London to the West Midlands and Beyond

A Report to Government
by High Speed Two Limited

PART 10 of 11
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not guarantee the accuracy, completeness or usefulness of the information contained in this document and it cannot accept
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ISBN: 978-1-84864-072-6

Unless specified, all maps, tables, diagrams and graphs in this report are a product of HS2 and its consultants.

Chapter 1:
ICE 3 high speed train on the Frankfurt-Cologne high-speed rail line, Sebastian Terfloth;
Eurostar, Dave Bushell www.canbush.com/ppbfrontpage.htm;
Gümmenen viaduct over the river Sarine with TGV 9288, Berne, Switzerland, Chriusha;
Tunnelling, HS1 Ltd
AVE Tarragona-Madrid, Fototrenes
St. Pancras Station, HS1 Ltd

Chapter 5:
Matisa www.matisa.com/matisa_ang/matisa_produits.html
Chapter 5 – Implementation
 High Speed Rail for Britain – Report by High Speed 2 Ltd

5.1 Delivery and funding

Introduction
5.1.1 This section summarises our assessment of the options for the delivery and funding of HS2.
We began our work by considering the accumulated UK experience of delivering major projects
such as HS1 and the now extensive experience of building and operating high speed rail projects
internationally. We then undertook a series of workshops, as well as qualitative and quantitative
analysis, to assess the different options.

5.1.2 In October 2009, we presented our emerging conclusions to our ‘Delivery and Funding Challenge
Group’ to provide an independent perspective and expertise. The group, chaired by Sir Adrian
Montague (formerly Chair, British Energy and Friends Provident plc), included the following
investors, lenders, contractors and regulators, and their feedback has been considered throughout
this section:
• Michael Adams, President, Bechtel Civil, Bechtel Corporation
• Philippe Camu, Managing Director (Head of Europe), Goldman Sachs Infrastructure Partners,
Goldman Sachs International
• Ed Clark, Director, Infracapital, M&G Investments
• Cheryl Fisher, Chef de Division, Financements Structurés et Opérations de Partenariat Public-
Privé, Banque Européenne d’Investissement
• David Gray, formerly Managing Director, Networks, Ofgem
• Cressida Hogg, Managing Partner, Infrastructure, 3i Group plc
• Fred Maroudas, Director of Treasury, BAA plc
• Renaud de Matharel, Chief Executive Officer, Natixis EIL
• Stephen Paine, Managing Director & Global Head of Infrastructure Group, UBS Limited
• Anthony Rabin, Deputy Chief Executive Officer, Balfour Beatty plc

Sir David Rowlands, Andy Friend and Mike Welton, as non-executive members of HS2’s Board, were
also part of the group.

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5.1.3 Further detail on our approach is contained in the three supporting documents to this section, which
have been prepared by our financial advisers, Ernst and Young:
• International case studies on delivery and financing – report on international high speed rail
projects in, for example, France, Portugal, Spain and Taiwan, which are referenced throughout
this section.
• Delivery considerations and Financial considerations – reports on delivery and financing, which
support the conclusions of this section.

5.1.4 Our aim has been to ensure an effective model for the long term operations of HS2 (and a possible
high speed rail network), recognising that short-term funding or financing considerations should not
drive decisions on or constrain the flexibility of long term operating structures.

The role of the project sponsor

5.1.5 Given the size, complexity and duration of HS2, successful delivery will depend upon stability of the
long term vision and political support. Given the significant public sector funding requirement, this
stability must be provided by the public sector, as project sponsor. The project sponsor’s functions
include:

During planning and development:

• Setting out the long term strategy for the delivery of HS2.
• Specifying the requirements, budget and timetable for the HS2 project delivery body,
and controlling any changes to these.

During construction:
• Monitoring the performance of the delivery body for HS2.
• Balancing value for money, affordability, whole life costs, functional specification and the impact
on the classic rail network.
• Acting as a single point of accountability for the delivery of the project.
• Being the ultimate bearer of risk.

And, during operations:

• Monitoring the performance of the HS2 operator and maintainer and/or managing the
relationship with the long term infrastructure owner.

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5.1.6 For both financing and governance, a key question for Government at an early stage will be whether
it is proposing HS2 as a stand-alone project or as the first phase in a high speed rail network, since
financing the construction of HS2 on a stand-alone basis so as to increase the project’s short-term
affordability could mean that evolution of the line into a network is more costly and complex than it
otherwise might be. If Government decides to pursue a longer term strategy for a high speed rail
network, the project sponsor would also have an important role in setting out that strategy and is
developing and specifying the next phases.

5.1.7 Government could fulfil the project sponsor role itself. However, we believe that these functions,
while being carried out within a wider policy and funding framework set by Government, would
be better undertaken by a body at arm’s length from central departments. Such a sponsor body
would, in our view, be better placed to focus on project delivery and provide the necessary long term
stability – similar to how the Olympic Delivery Authority and the Nuclear Decommissioning Authority
provide clear leadership for the delivery of their respective objectives. This issue of governance
would be particularly critical for Government if HS2 were to be the first phase in the development of
a high speed rail network.

Delivering HS2
5.1.8 The main options for delivering the HS2 infrastructure are traditional public sector procurement or
some form of Public Private Partnership (PPP). The choice depends in particular on the scope for
value for money risk transfer, the effectiveness of risk management, and, ultimately, whether the
approach ensures an effective model for long term operations.

5.1.9 PPPs are attractive if they increase affordability and value for money by using private finance
to spread the project’s costs to Government over time and to transfer risk to the private sector.
However, HS2 is simply too large to be financed as a single PPP and it would be unrealistic for the
private sector to accept such a scale of project risks. As a comparison, the total value of all PPP
contracts let in the UK in 2008 was £6.5bn (which is approximately a third of the capital cost of HS2).
It is for this reason that, for example, the Portuguese high speed rail network was split into PPP
contracts of approximately £2bn to £4bn for individual lines of between 100km and 300km.

5.1.10 This suggests that a single PPP is unlikely to cover construction amounting to more than 20% of
the capital costs of HS2 – and so five or six (or more) contracts would be needed. We therefore
considered the scope for disaggregating the HS2 infrastructure into its project components – on the
one hand, the core railway and, on the other, rolling stock and depots, and stations.

5.1.11 In practice the choice for delivering the core railway components is between multiple PPPs
(principally, “Design, Build, Finance and Maintain” (DBFM) or “Design Build Transfer” (DBT)) and
a more traditional public sector procurement approach. In contrast, the project’s train and station
components might be delivered through commercial structures utilising private finance that should
not have an impact on the flexibility of HS2’s operations over the long term and may have the
potential to improve the affordability of the project.

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Multiple Public Private Partnerships

5.1.12 The five or six DBFM contracts that would be needed for HS2’s railway components might be
bundled together in different ways – for instance, by component type with several DBFMs for civil
engineering and structures (tunnels, viaducts, bridges, earthworks and drainage), one for the
railway systems (tracks, electrification, and heating, lighting and ventilation of tunnels), and one
for the control systems (signalling, control centre and communications). Alternatively, it might be
possible to have geographically-split DBFMs, although this would be less suitable for HS2 as it is a
single line. There are also other forms of ‘design and build’’ PPPs, such as ‘Design, Build, Transfer’.

5.1.13 However, whether component or geographically-based DBFMs or some other form of design and
build approach is adopted, in practice the delivery body would have difficulty managing the interface
and integration risk between the contracts, particularly as design control would be transferred and
the consistency of the design across the project would be reduced. The unattractiveness of this is
supported by the experience of the Dutch Hogesnelheidslijn Zuid (HSL-Z), where the complexity of
integrating the multiple PPPs used to finance the high speed rail line meant that train services did
not commence operations until two years later than planned.

5.1.14 The DBFMs would still require very substantial Government support because of both the length
of the construction period during which no revenues are being generated and the capacity of the
market to provide only a portion of the total financing required. Also, the private sector is unlikely
to accept many of the construction risks such as the interface with the classic rail network and
Government is ultimately exposed as funder of last resort. So, in practice, the opportunities for value
for money risk transfer under a DBFM for a high speed rail line may not be that much greater than
with public sector procurement. In the case of the TGV Bretagne – Pays de la Loire PPP, for example,
the French Government needed to guarantee 80% of the debt.

5.1.15 Above all, multiple DBFMs for the core railway would create multiple owners and maintainers of
HS2 in operation. We believe that it is vital to reduce such interface risk to ensure performance and
growth in the use of the infrastructure. For that reason, in our view, there should be a single HS2
owner (or “Infraco”) to control the operation and maintenance of HS2 or a wider network. Therefore,
we do not recommend a DBFM approach.

Public sector procurement

5.1.16 More traditional procurement of the construction of the railway components by a public sector
delivery body – while not providing the level of risk transfer that might, in theory at least, be
available with a PPP – may be done in a way that allows construction risks to be suitably managed.
For example, while the project delivery body might retain some or all design control to decrease
integration risk and to balance consideration of whole-life costs, a partial design approach could
allow the private sector contractors to innovate and compete on detailed design consistent with
HS2’s specification. Also, the construction contracts could have mechanisms to incentivise
construction performance such as fixed or target prices, and contractor equity to strengthen risk
transfer.

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5.1.17 Experience with Crossrail, HS1 and, for example, T5 at Heathrow, also suggests that a strong
delivery function will be critical to the procurement. The delivery body should be separate from the
project sponsor body by the point at which detailed design and planning begins. This will enable it to
focus on its role of delivering the sponsor’s requirements whilst being in some control of design.

5.1.18 The delivery body will need to build organisational capability and capacity in delivering major
infrastructure – for example, skills in managing integration risk for multiple construction contracts,
and other risks that cannot be transferred. It might also engage a delivery partner to support its
project management and to draw on private sector expertise, experience and innovation that it may
not be able to retain itself. However, if there is to be a high speed rail network, then it might be
better value for money to build and sustain expertise and experience in the delivery body over the
longer term, which might sequentially deliver the next phases of the network.

Conclusions on delivery
5.1.19 So far as the core railway is concerned, in order to minimise interface risk in HS2 operations we
believe that there is a need for a single Infraco as part of the long term operating structure. We
also believe that it will be critical to the procurement for there to be a dedicated delivery body for
HS2. Public sector procurement can best provide for this by separating the different risks and
responsibilities in the project’s construction and operational periods. This will subsequently allow
Government the flexibility to decide on what structure should be put in place post-construction in a
way that multiple DBFMs would not. We therefore recommend a public sector procurement approach.

Rolling stock and depots

5.1.20 It should be possible to finance rolling stock and the train depots together, and separately from the
railway. Current practice is for these to be financed under leases – for example, the Thameslink
Rolling Stock Project is procuring approximately £1.5bn of rolling stock and approximately £0.5bn of
depots. Alternatively, the £5.9bn Intercity Express Programme is based on an availability payment-
based DBFM PPP. However, we recognise that factors such as the total costs and the market’s
willingness to accept technical and residual value risk on the bespoke classic-compatible high
speed trains are likely to affect the financing options available, and so, for the financial modelling,
we have not assumed that the capital costs of these project components can be spread over time.

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Stations
5.1.21 As described in Chapter 3, Euston station is the most complex component of the HS2 project from
a construction perspective – involving the total rebuild of an existing station whilst classic train
services continue to operate from the station throughout the construction period. We believe that
a single body should have responsibility for procuring the rebuild in order to best manage the
risks involved. Government will need to decide whether that should be the HS2 delivery body or
the current owner of the station, Network Rail, as well as how that body is to balance the rebuild
with the continued operation of the classic rail network. It will be important to understand and, as
far possible, make contractual provision in franchises for dealing with the impacts on train service
operators on the classic rail network.

5.1.22 In contrast, some of HS2’s new-build stations (for example, Birmingham Interchange and Fazeley
Street) could be delivered by DBFM contracts, as they are relatively separate from the other project
components in terms of both construction and operations. While significant in themselves, they are
of a fairly modest scale and engineering complexity and consist of relatively simple civil engineering.
Such PPPs could be based on availability payments or user charges. These possibilities will need to
be considered further as the design of these stations develops and, again, we have not assumed in
the financial model that the capital costs of the stations can be spread over time.

5.1.23 Whilst it has not been a deciding factor in choosing stations, there would be significant opportunities
for redevelopment around HS2’s stations – in particular, the rebuilt Euston station, which might
catalyse regeneration of the surrounding area, the Old Oak Common station (given the local
authority’s aspirations), and the Fazeley Street station in Birmingham’s Eastside regeneration
area. The project delivery body or sponsor might therefore need a wider social and/or commercial
redevelopment function, as such opportunities should be integrated into the project design at
an early stage (as was the experience at St. Pancras station for HS1). A separate station delivery
body might be needed to engage with land and property owners, the local authority and other
stakeholders over the long term in order to maximise the social and commercial value that could be
generated.

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Delivery structure for construction

5.1.24 A diagram of the possible delivery structure for construction of our recommended approach, as
described above, is provided at Figure 5.1a.

Government

Contracts transfer to government on completion Assets transfer to government on completion

Arm’s-length
sponsor body

Delivery body

Station and train components Railway components

Civils and
Stations DBFMs Depots and rolling Railway systems Control systems
structures
and procurements stock DBFM procurement procurement
procurements

Figure 5.1a Proposed delivery structure for construction of HS2

Long term operations of HS2

5.1.25 Once construction is completed, we envisage that the infrastructure (and the contracts for any
disaggregated components) would transfer from the HS2 delivery body to the project sponsor/
Government. At this stage, possibly following a period of stable operation to generate a revenue
history, Government has the flexibility to determine the model for HS2’s operations over the long
term. Government could continue to own the infrastructure or it could “sell” it to the private sector.

Build for sale

5.1.26 There are two “build for sale” options for realising the value of HS2 by selling it to the private sector:
• Contract. Sell a long term contract for the operation and maintenance of HS2 to a concessionaire.
• Regulation. Sell the infrastructure to be operated and maintained as, for example, a regulated
asset base (RAB).

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5.1.27 The value and timing of the sale will be determined by factors such as the amount of risk transfer
that is achievable on a value for money basis, the amount of Government support that is required
and, in particular, how the user charges are set. On the one hand, guaranteeing a level of user
charges or availability payments would increase the sale value. On the other, setting of user charges
by the market offers flexibility and avoids any ongoing Government subsidy, though the sale value
would be significantly lower than the project’s capital costs and Government would only recoup a
small proportion of its initial investment in HS2.

5.1.28 While private sector investors may prefer the certainty of a long term concession contract, they are
also more familiar with regulated assets rather than unique concessions. Features of a regulatory
regime, such as periodic reviews to ensure competitiveness of user charges by resetting them
regularly to account for cost inefficiencies and changes in circumstances, may also be desirable to
both Government and investors.

5.1.29 Overall, Government will want to understand what structure will best enable the successful delivery
of the long term operation of HS2 – for example, through incentivising performance and growth of
the infrastructure and maximising the attractiveness of the asset to the market. The sale options
will also be influenced by the prospective level of financial contribution to the next phases of a high
speed rail network – for example, by recycling the sale receipt or raising finance against a regulated
asset – should that be a consideration for Government.

Long term ownership of HS2

5.1.30 There is also the question of who the long term owner of the HS2 infrastructure might be, in
particular if the line is sold as a regulated asset. The relatively limited number of HS2’s interfaces
with the classic rail network (except for those at Euston station) and the different challenges for
the new high speed rail line (for example, the low future maintenance cost risk and the potential
for substantial future investment in a network) mean that it could have a separate infrastructure
owner, operator and maintainer from the classic rail network; or it could be owned and/or operated
by Network Rail. The HS2 Infraco could contract with other parties to undertake maintenance, but,
most importantly, it would be the single point of responsibility for the operations of the line.

HS2 train service operations

5.1.31 We have made no assumption of how train services would be operated (not least because we
cannot anticipate possible future changes to the railway over the next 15 to 20 years). However,
the experience with the original Channel Tunnel Rail Link and, for example, Taiwan High Speed
Rail has shown that there are significant risks around the private sector accepting revenue risk
for infrastructure. Instead, we believe that a proportion of revenue risk should be transferred to
the train service operator through fares (as with current franchises). Whether the principal train
services are procured by the project sponsor/Government or the HS2 Infraco will depend on this
balance of revenue risk between the train service operator and the infrastructure owner.

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Regulation
5.1.32 The experience with HS1 and Crossrail indicates that a regulatory regime could be tailored to the
delivery structure of HS2, with differences in some of the specific regulatory functions (depending
on, in particular, the sale approach and how user charges will be set). If there is a strategy to
develop a longer term high speed rail network, the regulatory regime will need to be flexible so as to
allow the evolution of HS2 into a network.

5.1.33 We would expect the regulator of the classic rail network, the Office of Rail Regulation (ORR), to
continue to have a role in regulating the railway north of HS2’s connection with the WCML, and
allocating released capacity on the WCML south of Birmingham. In developing the train service
specification, Government may need to test how to protect the future capacity on the WCML for
HS2’s high speed train services north of Birmingham and for improved train service levels south of
Birmingham. Government will also wish to consider the potential impact of competitive response
from open access operators, as well as the scope for competitive choices between operators on
HS2 and the WCML. In this context, there is a question as to whether or not the regulatory regimes
should be separate for the two railways. These are questions that do not need to be answered at
this stage, but they would require further consideration as the high speed rail lines or lines are
developed.

Funding HS2
5.1.34 Most new high speed rail projects require significant amounts of Government funding to be
viable. That such a railway project is not self-funding should be unsurprising given the amount of
Government subsidy required to sustain the classic rail network and its train services (£4.2bn in
2009-10). This is confirmed by the financial modelling of the cash flows over 30 years for HS2, which
demonstrates that the net revenues generated are less than the total cost of the project, including
capital costs.

5.1.35 We have described earlier in this section why we do not think a PPP is an attractive proposition
for HS2. The more traditional public sector procurement, which we recommend, means that it is
inevitable that Government must cover the upfront capital cost of at least the railway components of
the project.

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Development Construction Operations

500

-500

-1000

-1500
£m

-2000

-2500

-3000

-3500

-4000

-4500

Figure 5.1b Proposed profile of Government funding for HS2

5.1.36 Figure 5.1b shows the profile of Government’s funding for HS2 from 2011 – with upfront capital costs
during construction and a premium to Government during operations, net of the revenues that HS2
will abstract from the classic rail network.

5.1.37 Any HS2 premium could, in principle, contribute to the upfront capital cost of HS2. However, it would
be difficult to securitise this to finance construction without Government guarantees for the debt.
Instead, the premium might increase the value of a potential sale of HS2 or contribute to the next
phases of a network once HS2 is operational. It should be noted that the revenues are drawn from
our demand modelling and that there may be scope for increasing the revenues (and, consequently,
the operating premium) through, for example, the use of yield management techniques.

Scope for non-Government funding contributions

5.1.38 We have considered the scope for non-Government funding contributions to reduce the cost of HS2
to Government, particularly the upfront capital grant requirements.

5.1.39 Firstly, we have considered contributions from economic beneficiaries of the infrastructure – those
parties that will experience improved journey times, train service levels and connectivity – based
on the principle that those who benefit should contribute to infrastructure. This was the case for
Crossrail, which benefited distinct groups and areas; in contrast, the benefits from HS2 will be
more widely and more thinly spread. Therefore, they may be difficult to monetise and secure. Such
contributions might be sourced from:
• Non-user charges. For example, retailing and advertising at stations, utilities along the line of
route, and the sale of corporate sponsorship and naming rights of the line and/or stations.

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• Train fares. A ‘high speed rail’ levy on fares for all train journeys (high speed and classic rail)
could be applied, as railway users will be the principal beneficiaries; for example, a 1% levy might
raise £50m-£75m per year.
• Air passenger duty. An incremental levy would only make sense if HS2 was proposed to be the
first phase in a high speed rail network and, probably, if a levy was commensurately applied to
train fares.
• Supplementary business rates (SBRs). This would be difficult in the Greater London region as a
SBR is already allocated to Crossrail from 2010 for 30 years; application in the West Midlands is
theoretically possible, but, in practice, would be likely to require some comparable contribution
from London beneficiaries.
• Council tax. Council tax valuation bands will likely mask any incremental increases in rates; a
flat-rate ‘high speed rail’ levy, similar to that for the London 2012 Olympics, could be applied
across the West Midlands county and Greater London region.
• Redevelopment. Land and property owners, the local authority and other stakeholders could
contribute directly by pooling or leasing land and property at HS2 stations or contributing
to stations or ancillary investment to improve accessibility to stations, or indirectly via the
Community Infrastructure Levy – but any additional value will be generated over the long term.
• Other public sector funding. From, for example, local authorities or Regional Development
Agencies for components such as stations and ancillary investment to improve accessibility,
although this could be contingent on conditions imposed by the parties contributing (as has been
the case in France – the use of local Government funding for the TGV Sud Europe Atlantique had
conditions relating to local road investment).

5.1.40 Secondly, we have considered access to European funding sources. Recent European high speed
rail projects have been nearly 20% funded by EU grants – for instance, the Porto-Lisbon and
Lisbon-Madrid lines – but the majority of this is from the Cohesion Fund, for which the UK is not
eligible. The European Regional Development Fund could possibly apply to ancillary investment,
but its objectives and priorities are very unlikely to be aimed at the UK or projects such as HS2
in the future. Approximately £350m will be distributed from Trans-European Transport (TEN-T)
programme grants to high speed rail projects, which is a significant proportion of the available
funding, but only a tiny proportion of HS2’s costs. To access TEN-T programme grants, Government
would need to include HS2 and/or a high speed rail network as a priority axis on any successor
to the TEN-T programme by demonstrating the projects’ added value through reducing traffic
bottlenecks and optimising capacity on other priority axes such as the WCML, and contributing to
the continuity of the TEN-T and European high speed rail networks.

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5.1.41 It is impossible to reach detailed conclusions at such an early stage of the development of the
project and given the uncertainties as to how non-Government funding contributions might be
secured – for example, the political support required for a train fare levy. We are, however, clear that
they will amount to only a small contribution towards the overall cost of HS2, up to a maximum of
about £1bn. And it may be very much less.

Summary and key recommendations

5.1.42 In this section of the report, we have assessed the options for the delivery and funding of HS2. We
concluded that:
• Consideration of the long term operations of HS2 (and a possible high speed rail network) should
determine delivery structures, including financing and governance.
• Long term stability for project delivery must be provided, in particular through the functions of an
arm’s-length body as project sponsor.
• Government must make an early decision on whether HS2 is intended to be a stand-alone high
speed rail line project or the first phase of a future high speed rail network – and, if the latter, the
project sponsor body should have a role in this.
• A single Infraco is needed to control the operation and maintenance of HS2 or a wider network.
• A dedicated delivery function is critical to the procurement.
• A traditional public sector procurement approach to delivering HS2 can best deliver the
separation of responsibility for delivery and operations that is needed to minimise risk.
• A single body should be in control of Euston station for the construction period.
• Wider social and/or commercial redevelopment opportunities around stations should be
integrated into the project design at an early stage.
• Government must cover the upfront capital cost of at least the railway components of the project.
• Government then has the flexibility to decide how HS2’s operations are to be delivered over the
long term, including exercising one of two principal “build for sale” options, which may also offer
the prospect of a financial contribution to the next phases of a high speed rail.

5.1.43 We also believe Government should give early consideration to:

• What model might be best for the long term operations of HS2 and who the long term owner of
the HS2 infrastructure might be.
• What regulatory regime there should be for HS2 (and a high speed rail network) and the WCML,
considering in particular how user charges will be set.
• What amount of non-Government funding contributions might be secured, in particular from
revenues, redevelopment and European sources.

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5.2 Implementation and timescales

Introduction
5.2.1 This chapter sets out possible timescales for HS2 from now until opening and sets out any key
implications of how the project might be taken forward.

5.2.2 The main components of the timeline are:

• The need for effective public consultation and management of blight.
• The need to secure approval for building HS2 and to satisfy other legal requirements, either
through a hybrid bill or application to the Infrastructure Planning Commission, requiring further
design and Environmental Impact Assessment.
• Production of detailed engineering designs and construction drawings.
• The time needed to put in place the structures for the functions of the project sponsor and the
project delivery body and build their capability.
• Mobilisation – preparations for construction, including procurement, initial utilities diversions,
detailed planning permissions and land assembly and preparation of temporary works.
• The main construction period.
• Testing and commissioning the new infrastructure, rolling stock and operations.
• Opening the line and starting to operate passenger services.

5.2.3 Up to the start of construction, we have assumed the need for three investment approvals;
provisional approval at the time of the decision on the preferred route; conditional approval after
securing the necessary powers and at finalisation of the contracting strategy; and final approval
before starting construction. The rest of this chapter provides more details about the key areas and
ends with our considerations about what this means for the overall timetable and of the main risks
and opportunities.

Consultation
5.2.4 Consultation with the public and interested stakeholders is a fundamental part in the development
and delivery of any major infrastructure project. The HS2 Consultation Strategy sets out our
high-level recommendations on how Government should take forward a public consultation. We
recommend a two stage approach to this. The first public consultation would be on the strategy
proposed to be followed by the Government. A key focus of this would be on the analysis and
assessment of the preferred London to West Midlands route and the options considered. A second
consultation would follow once a more detailed design of the preferred route had been completed
and would be associated with securing powers.

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5.2.5 Generally, Government consultations last for a minimum 12 week period. Given the scale of this
project and the scope of proposed communication activity 6 months would be a more appropriate
timeframe for the first strategic consultation. This consultation would inform the decision on the
preferred route. The decision on the preferred route would also be the point at which the project
delivery body should be separated from the project sponsor so it can focus on the role of delivering
the sponsor’s requirements.

5.2.6 A second consultation would be required in due course on the detailed design of the preferred route
in advance of seeking the necessary powers. This consultation would include much greater detail
on engineering, planning, environmental assessment and mitigation planning. It would also allow
more robust costings to be produced, which would be essential for giving the necessary degree of
commitment to public funding before powers were sought.

5.2.7 We also recognise the specific requirements in the Planning Act for public consultation which would
need to be complied with if approval for HS2’s development was sought through the Infrastructure
Planning Commission.

5.2.8 Once further design work had been done on the route, it would be possible to determine which
existing properties – for instance residential, commercial or industrial ones – would need to be
purchased in order to build and operate the new rail line. At the same time, it would be possible to
identify those properties in the vicinity which would not need to be purchased but which could still
be affected by the construction and operation of the line (for example by noise or vibration), as well
as what mitigation measures (such as sound barriers) could be put in place to reduce these negative
effects.

Blight
5.2.9 The experience of other major transport schemes – such as HS1 – is that they can have the effect
of blighting property in the immediate vicinity, either making the property unsellable or reducing its
value. In the case of HS2 this blight would be likely to take two forms:
• Statutory blight relating to those properties that would need to be taken in order to build
or operate the line.
• Until any decision is taken on the exact route of the line, the main risk is of generalised blight.
In other words if a property owner tried to sell during this period, uncertainty as to whether
that property might be affected by HS2 might have the effect of deterring buyers or reducing
significantly the price they were prepared to pay. Generalised blight can also apply to properties
that do not need to be purchased to build or operate the line but which would be severely affected
by it (eg through noise). Generalised blight could be triggered as soon as route proposals are
published.

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5.2.10 If the Government decides that it wishes to take forward the proposals in this report for a new high
speed line, and to consult on a preferred route for the line, there would inevitably be a risk that
some properties on or in the vicinity of the route would be affected by generalised blight. We note
that the Government announced on 14 December 2009 that it proposed to consult on an exceptional
hardship scheme which would allow those property owners whose properties are severely affected
by generalised blight, and who have a pressing need to sell, to apply for the promoters of HS2 to buy
their property.

5.2.11 We also recommend that, after a public consultation on the form of the exceptional hardship scheme
and a final decision is taken on the detailed arrangements, the scheme should operate until such
time as the Government makes a final decision – post strategic consultation - on whether to go
ahead with the new line and on exactly what route it should take.

5.2.12 If, following consultation, the Government decides to proceed with HS2, a follow up statutory
blight scheme would need to be put in place setting out the arrangements for the promoters of
HS2 to purchase those properties which were needed either to allow the line to be constructed
or for operating the line once it was opened, or which were near enough to the line to be made
uninhabitable. Our current assumption is that this scheme would need to apply from about the time
that the final route for the line was published.

5.2.13 In due course it would also be necessary to safeguard the route of HS2. Safeguarding is a legal
process which would allow the Secretary of State to require planning authorities (such as London
Boroughs) to notify certain other bodies (such as the HS2 promoter) before granting planning
permission for any development proposals which might affect the proposed HS2 route, for example
where developers are proposing to build over part of the route. This would allow those bodies to
recommend to a planning authority that it should either refuse permission for the development or
only grant it with conditions attached. We would expect the main safeguarding exercise to take place
once the Government has decided on the final route for the line, though the Government may wish to
consider whether certain parts of its preferred route should be safeguarded earlier.

Powers
5.2.14 Once a detailed route had been identified, it would still be necessary to seek legal powers to
allow construction to proceed. Amongst other things, these powers would be needed to enable
the promoter to purchase compulsorily the land required to build and operate the line, pay
compensation to people affected by the works, and amend existing legislation, where this was
necessary to construct the line.

5.2.15 There are two possible approaches to obtaining the necessary powers, firstly a hybrid bill in
Parliament, and secondly, an application to the Infrastructure Planning Commission. We note that
the Government announced on 14 December 2009 that if it decided to proceed with plans for HS2 a
hybrid bill would be prepared.

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Hybrid bill
5.2.16 A hybrid bill is a set of proposals for changing existing laws, which needs to be debated and
approved by Parliament. Such bills follow a slightly different procedure from normal “public” bills,
in that they give organisations or individuals the chance either to oppose the bill in Parliament or to
look to amend it when it goes before a Select Committee in either the House of Commons or Lords.
In the past, the hybrid bill has been the usual way of obtaining powers to build major transport
infrastructure projects of national importance, where these would also affect the private interests
of a significant number of individuals.

5.2.17 There are several characteristics of hybrid bills which are relevant in deciding whether they are the
right route for obtaining powers for HS2:
• Although Parliament has only passed around a dozen hybrid bills over the last 25 years, they
have been used for several major transport projects, including the Channel Tunnel Rail Link
(HS1), Crossrail and the Dartford River Crossing. As such, the procedure is a familiar one, with a
relatively straightforward process, which would allow people and bodies who might be affected
by the proposals a proper opportunity to put their views across and have these taken into account
before Parliament decides whether to approve the bill.
• The process is a flexible one. The contents of a hybrid bill could be tailored to include all of the
various powers which would be needed to construct HS2, including obtaining overall planning
permission and amending existing legislation, such as that relating to rivers, trees and utility
(e.g. telecommunications) companies’ apparatus; and, any powers needed to put in place delivery
and regulatory structures or funding mechanisms.
• Whilst this route rightly allows objectors to any HS2 proposals the opportunity to put their case
across, once the Bill had become law there would be no risk of further legal challenge preventing
the scheme going ahead unless it could be proved that aspects of the proposals breached
European law.
• Hybrid bills are subject to more intensive scrutiny in Parliament than normal public bills, and so
consume more parliamentary time. As such, they would affect the time available in Parliament
for other legislation which the Government might also see as a priority.

Infrastructure Planning Commission

5.2.18 The Planning Act 2008 introduced a new route for obtaining powers for major infrastructure projects
of national importance - which could include for example, airports, power stations or reservoirs -
the Infrastructure Planning Commission (IPC).

5.2.19 The IPC, which started its work in October 2009, is a non-departmental public body. Where a
sponsor, such as a private developer or a Government department, wished to build new major
infrastructure they would be able to submit an application to the IPC to be given the necessary
powers. The sponsor would already need to have carried out widespread public consultation on the
scheme before submitting it to the IPC. Any body or person with an interest would also be able to
submit their views on individual proposals to the IPC.

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5.2.20 In order to set a framework within which the IPC could work, the Government intends issuing a
series of National Policy Statements (NPSs) setting out national policy relating to particular types
of national infrastructure – such as nuclear power and the strategic road and rail network. In
considering applications for powers to construct new infrastructure the IPC would have to take into
account their compatibility with the relevant NPS.

5.2.21 Where the IPC decided to approve an application, the scheme promoter would be granted a
development consent order, which would give it a range of powers needed to build HS2, including
planning permission and compulsory purchase powers.

5.2.22 The features of the IPC route which may be relevant to whether it is the best route for obtaining
powers for HS2 include:
• As the Planning Act set up the IPC specifically to consider major infrastructure projects, at first
sight it would seem appropriate for it to rule on any application to build a new high speed rail line.
• Leaving a decision on whether powers should be granted to build HS2 to the independent IPC
would mean that the case for the HS2 proposals could be considered on its own merits, rather
than it becoming subject to political pressures.
• Whilst the IPC would be able to grant HS2 overall development consent to go ahead, it would not
necessarily be able to make changes to any existing legislation which would be required to build
HS2. In particular, it would be inevitable that changes would be needed to general legislation
covering railways, for instance to the role of Network Rail and Office of Rail Regulation in relation
to a new high speed link. It seems unlikely that these changes could be made through the IPC
route, so a supplementary bill in Parliament would still be needed.

Environmental assessment
5.2.23 Whichever route is pursued, there would be advantage in having a NPS which sets out the policy for
high speed rail. For the IPC route this would be a requirement in any event. For the hybrid bill route,
such an NPS would provide the required consideration of the strategic alternatives. In both cases
the NPS would be subject to an Appraisal of Sustainability, which may also need to incorporate the
requirements of the Strategic Environmental Assessment Directive and its regulations.

5.2.24 Both the hybrid bill and IPC routes require an Environment Impact Assessment and Environmental
Statement. This would be a project level assessment for a precisely defined preferred route,
covering in less detail the main alternatives considered.

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Timetable
5.2.25 Based on the experience of recent bills – and subject to outside influences, such as the timing of
elections - the hybrid bill process could be expected to take approximately two to two-and-a-half
years from introduction of the bill into Parliament to it receiving Royal Assent. The IPC has only
recently been set up and has yet to rule on any applications. Given this, it is difficult to be certain
how long it would need to consider and decide upon what would be a very detailed and complicated
application. The indicative timetable which the Commission has published suggests that once the
IPC has accepted that the application has been submitted validly it would take around one year
for them to complete the assessment process and for the application to be approved or turned
down. That said, the IPC can extend this timescale, for instance where applications are particularly
complex, as inevitably they would be for HS2.

5.2.26 However, before an application can be submitted to the IPC, the promoter needs to have carried out
various pre-application tasks, including a widespread consultation with local communities affected
by the proposals and a series of other bodies. So, on balance, the timescales for both the hybrid bill
and IPC route could turn out to be broadly similar.

Mobilisation
5.2.27 By the time of preparation for powers, a defined delivery body and sponsor should be in place
(in shadow form if their establishment requires legislation). After obtaining powers to build the
new line, whether via a hybrid Bill or the IPC, around two years would be needed before the main
construction work could begin, for instance to allow for detailed planning approvals, land assembly,
commencement of initial utilities diversions and temporary works, finalising the funding, letting
contracts and other steps to mobilise the project. Advanced planning for the major construction
works would need to start as soon as possible in order not to delay the overall timetable. This
mobilisation period could take longer depending on the complexity of the delivery arrangements, the
contracting strategy and finalising funding. During this stage the final investment approval would be
required before the main construction starts.

5.2.28 The procurement of the classic-compatible fleet would commence during the mobilisation stage,
allowing time for the fleet to be designed, approved, built, delivered and tested. The procurement of
the “off the shelf” fleet would start later, as the ‘design’ and ‘approval’ stages would need little time.
Rolling stock procurement would be linked to the depot construction programme. All infrastructure
and rolling stock testing would need to be completed by early 2025, allowing for a period of
operational training and shadow running before opening.

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Construction
5.2.29 We estimate that construction would last for around six and a half years. The largest element of the
programme in terms of value and overall duration would be Euston Station and its approaches. The
construction of this element would probably take the whole of the construction period and would
form the critical path for the whole programme. The other major site-specific work packages would
be (in no particular order, with indicative durations):
• Birmingham Fazeley Street station (4 years).
• Old Oak Common station (4.5 years).
• Rolling stock maintenance depot (3 years).
• Infrastructure maintenance depot (2 years).
• Birmingham delta junction (2 years).
• London tunnels (Old Oak to Euston) (4.5 years).
• HS2 to HS1 tunnel works (3 years) (if the rail link were to be taken forward).
• Chalfont and Amersham tunnels (5.5 years).
• Little Missenden tunnel (4 years).
• Ufton Wood tunnel (4 years).
• The construction and fitting out of an operational control centre (2.5 years).

5.2.30 The site-specific contracts would be phased to enable adjacent contracts to take place with a
minimum amount of disruption. They would be complemented by linear contracts to cover the
construction of sections of Line of Route linking the key sites. These linear contracts would cover:
• Civil works (earthworks, bridges, local road diversions etc).
• Trackwork.
• Electrification (power supply and overhead line equipment).
• Train Control Systems (signalling and telecommunications).

5.2.31 These linear contracts would be phased to link with key milestones in the site-specific contracts to
simplify construction and lower cost and programme risk.

5.2.32 It is anticipated that each of the major site-specific work packages would require major temporary
worksites to cover the actual construction period, plus periods before for mobilisation and site
preparation, and for fault rectification and general testing. In addition to the key worksites a large
number of much smaller ones of a more temporary nature would be required adjacent to the line of
route for plant and materials storage and for staff welfare facilities.

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Testing and commissioning

5.2.33 During and then after construction there would be a period of testing and commissioning before
passenger services start. This period would be used to test all of the new infrastructure, rolling
stock and operations and confirm that the line is ready for passenger services. Safety testing and
recruitment and training of staff would be part of this process.

5.2.34 When sufficient testing has been carried out there could be some shadow running of services where
high speed services can start to operate in addition to the existing timetables for example, as seen
with the HS1 domestic services during 2009.

The timetable
5.2.35 Figure 5.2a shows a possible project plan for building our preferred scheme. The earliest possible
time that HS2 would open under this scenario is December 2025.

Activity 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Submit Report

Ministers Decision

Strategic Public Consultation

Preferred Route (Provisional

Investment Approval)

Development of Specification

Commence Approval Process

Approval Process Complete

(Conditional Investment Approval)

Detailed Design

Mobilisation etc

Final Investment Approval

Construction

Testing & Commissioning

Opening

Figure 5.2a Proposed project timeline for HS2 to opening

5.2.36 Figure 5.2b sets out the spread of costs across the project until opening, calculated using the
programme of works and capital costs described in Chapter 4, including construction risks and
purchase of rolling stock. The relevant infrastructure costs, split by components, have been spread
over the duration of the activity. For example, the earthworks have been spread over the five years
in which they will occur. In general, the rate of spend on infrastructure costs builds gradually during
preparatory works and then increases during the main phase of construction activity before reducing
again.

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5.2.37 The overall cost profile of HS2 would also increase slowly during the design and approvals stage,
before increasing rapidly as construction starts and then reducing as construction is completed and
the testing and commissioning phase commences. The additional risk profile allowance has been
allocated pro rata to project spend. However, there are other ways of spreading the costs throughout
the duration of the project, for example, with a higher proportion applied during construction than
during preparation.

4,500

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10

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Figure 5.2b Proposed overall cost profile for HS2 from 2010 to opening

Risks and opportunities

5.2.38 This timetable carries considerable risk. If the public consultation identifies new route sections
that have not been previously assessed in detail, further design work and re-consultation would be
needed, which are likely to add to the timetable. Both the hybrid bill and IPC routes for obtaining
powers depend on obtaining Parliamentary time, which will depend on other legislative pressures.
Any changes to the scope of the project, at any stage but especially later in the process, would
require redesign and reassessment. Securing early and broad support and establishing structures
which insulate the project as far as possible from future changes would help to reduce these risks.

5.2.39 Funding is likely to be a significant source of risk with a project of this scale. Timely decisions on the
delivery and funding issues we have identified would be needed, including a decision on the most
appropriate delivery body, the long term owner of the infrastructure, the regulatory regime and most
importantly, the funding itself. Nevertheless, changes in economic circumstances and Government
policies and priorities inevitably raise considerable risks for the timing and certainty of public
funding, as well as any elements of private funding.

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5.2.40 Our assumed construction timetable is around seven and a half years from start of works to opening,
compared with 9 years for HS1. Our timetable is achievable but could clearly be longer depending for
example on ground and weather conditions and given the challenges especially at Euston.

Summary and key recommendations

5.2.41 The various processes through to opening are likely to take a period of at least 16 years, of which
broadly half is for planning, and preparation, and half for construction and commissioning. The
earliest we consider the new line could open would be December 2025.

5.2.42 If the Government decides to proceed, we recommend that the next key stage is a strategic
consultation on the Government’s proposals. Generalised blight could be created as soon as
route proposals are published. We recommend that a hardship scheme is established, following a
consultation on its contents, and note that the Government has announced its intention to do this.

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