White elephants on parade - lessons from HS2


By Rob Whiteman CBE, CIPFA CEO

Major infrastructures projects always come with their controversies. What will it cost, what are the benefits, where will the benefits be felt? But few projects have faced more questions, or dominated the news more heavily, than HS2.

The arguments for and against are numerous and loud. Costs have spiralled from initial estimates of £32.7bn in 2012 to £106bn in 2020, the benefits are largely questioned, and legitimate concerns are held around the project’s impact on some of the country’s most precious ecosystems. But the government hails HS2 as the future backbone of the UK’s transport infrastructure. It’s regarded as both the saving grace of our transport system and a great white elephant at the same time.

As such, it’s a perfect example of the broader, systemic financial management issues that blight major investment in our infrastructure. There should be no major project where the benefits and the risks cannot be clearly and unambiguously articulated.

The way in which the government approaches major infrastructure projects is long overdue a rethink. The approach must be rebalanced to focus on outcomes rather than delivery at the lowest possible cost.

The chancellor has suggested that the Budget will mark a turning point for spending on public services. For this to truly be the case, more is needed than short-term, discrete injections of cash. Whether they are announced at the Budget, or at a later comprehensive spending review that must urgently follow, revised guidance is needed to address the fundamental foundations of how government evaluates infrastructure investment and manages the subsequent contracts.

Such changes should include adopting a more nuanced approach, such as wider or mandatory use of open book accounting for ongoing contract management. This could substantially improve transparency and set a new tone for government major projects. By sharing details of costs and profits of contracts between suppliers, clients and the public, open-book accounting provides a level of supply-chain assurance that can prevent costs spiralling in an uncontrolled manner.

In the case of HS2, some might also say we see a certain amount of sunk-cost fallacy at play. This is where a project or behaviour is continued by virtue of the sheer amount of time and money invested. It’s easier to bury yourself in loss aversion and status quo bias when the true drivers behind spiralling costs are obscured. Providing accessible and easy-to-understand information around how and why costs have increased over time makes it harder for contract managers to ignore issues as they arise.

It’s also a matter of public trust and public perception of benefit. Greater Manchester mayor Andy Burnham recently accused the government of penny-pinching around HS2 once it reaches the north. A stronger presence of robust social, environmental and strategic outcomes broken down with greater granularity at an early stage of the project’s development would not only help counter such criticism, but help to build support for and trust in government.

Such changes would represent a win-win scenario for government, suppliers and the public. Greater trust from the public, greater value for communities, and more robust rebuttal to scrutiny can only be a good thing.

The language from Boris Johnson’s government suggests we are seeing a government with an appetite to take stock, learn lessons and see what can be done better in meeting the UK’s infrastructure needs. So ahead of the Budget, we urge government to take advantage of its majority and put its money where its rhetoric is. Let’s change how we do things for the benefit of all.

This article first appeared in Public Finance.

Webchat is available Monday to Friday, 09:00 - 17:00 (excluding UK bank holidays).