Public Accounts Committee

Oral evidence: Lessons learned from major rail infrastructure programmes, HC 709

Monday 10 November 2014

Ordered by the House of Commons to be published on 10 November 2014

Watch the meeting: http://www.parliamentlive.tv/Main/Player.aspx?meetingId=16431

Members present: Margaret Hodge (Chair); Mr Richard Bacon; Mr David Burrowes; Mrs Anne McGuire; Austin Mitchell; Stephen Phillips; John Pugh; Nick Smith.

Sir Amyas Morse, Comptroller and Auditor General, National Audit Office, Geraldine Barker, Director of Transport Value for Money, National Audit Office, John Thorpe, Executive Leader, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, were in attendance.

Witnesses: Philip Rutnam, Permanent Secretary, Department for Transport, David Prout, Director General, High Speed 2 Group, DfT, and Clare Moriarty, Director General, Rail Executive, DfT, gave evidence.

              Q1 Chair: Welcome. Today is a more deliberative day, looking at the work that we have done with you over the past goodness knows how many years. Fifteen years? How long, Geraldine?

              Geraldine Barker: Eight years.

              Q2 Chair: Eight years for you. We are going to see whether that is changing your approach now to projects such as HS2. That is the obvious one, and possibly HS3 and Crossrail 2. We will also look at any other ideas that are floating around.

              It is difficult to know where to start. Let me start with thinking about the first issue that the NAO raised about taking time on projects before you embark on them. I assume you accept that is a sensible thing to do.

              Philip Rutnam: Indicated assent.

              Q3 Chair: Great. When we looked at HS2 in the early days that was a criticism; that you had plunged in on the project without really assessing its viability and planning for it in the first instance. Do you want to bring us up to date on where, on that one, you think you are learning the lessons that have been brought out in the Report? Would you also tell me how that is impacting on your approach to the new concept of HS3 and the proposition that is around on Crossrail 2?

              Philip Rutnam: I will start with HS2. The first point to make is that we completely accept and very much agree that the planning and preparation phase of any of these projects is vital. It is that phase more than any other that determines the success of the project. We are currently in that phase on HS2. We have talked before about the timetable for HS2. The Government have said that they now expect Royal Assent for the hybrid Bill to be by December 2016, so there is a time scale for the Bill, which in itself allows more time for planning and preparation. The Government have also said that they continue to expect completion of the project’s construction by 2026, but construction can start in 2017, following Royal Assent.

              Q4 Chair: 2026 is phase 1.

              Philip Rutnam: Phase 1, yes. With completion by the end of 2026. I can tell you that the new management, which has leadership of the project and which has arrived since the last time we talked about it at this Committee, comprising David Higgins, the chair, and Simon Kirby, the chief executive, are from their long experience very focused on ensuring that they use this time to get the planning and preparation of the project right, on thinking through in great depth alternative approaches to procuring construction and on resolving as many of the issues as possible regarding the operating environment within which the project will proceed. That is their focus. There is immense effort going on at the moment into exactly those sorts of issues, which, as you will see from the reports on Crossrail, Thameslink and others, has proved so important to subsequent success. That is their priority.

              Q5 Chair: I think that you got things wrong in HS2’s planning. I hope that that is common ground and that you will not defend how it was planned in the early stages. You may say, “We’re getting better now,” but it was very much finger in the air during earlier stages. When we looked at the matter, there was no really good economic case for investment, little work had been done around the cost-benefit analysis that showed any credibility, and the costings against which you were working were pretty tenuous. Those sorts of things look bad. That is not what I would call sensible planning. So we got it wrong on HS2. We will come back to Mr Prout on how it is much better now. I am glad to hear it, but we will test that a little.

              Regarding HS3, one assumes, given the way these things go, that there will be something in the Chancellor’s autumn statement about it. Crossrail 2 is probably a little further behind that, but it is being talked about and the Mayor has shown a commitment to it. The interesting thing there is whether, in developing those two, you learned the lessons of what you did wrong before.

              Philip Rutnam: I don’t by any means agree with all of the characterisation of HS2 as it was before. What I would agree with, which is in the Report, is that the Government could certainly have articulated the strategic case for the project better. You will be well aware that after the last time we met on the subject of HS2 we did a great deal more work, informed by the Committee’s deliberations, the NAO’s Report and many other sources, on the strategic case. We produced what I thought was frankly a very good strategic case for the project in October 2013.

              There may still be room for debate about that, but I will move on to talk about HS3 and Crossrail 2, which you could say are at a broadly similar stage of development. If anything, there is a bit more detail about Crossrail 2, but they are broadly at the same stage, which is much earlier than HS2. For HS2’s first phase, we have a precisely defined route and obviously have legislation before Parliament. The Government have made many detailed decisions since January 2012 about the specifics of HS2’s first phase and decisions at a higher level, because it is earlier in the process, for the second phase.

              With HS3, it is more like the state of development of the proposals for a new high-speed line from London to the north in, say, 2009, very broadly—2009 or 2010. It is at a much earlier stage of development of the proposition. The absolutely critical thing that we need to do on HS3 now is to work up specific options—costed, with a business case—understanding the whole array of specific issues that go with any of these projects. I am talking about the same sort of options development process that the Department went through for HS2. The nature of the project is different again, because with HS3 it is very clear that we need to work in the closest partnership with the northern authorities and with Transport for the North, which is the new entity coming into being for the north. So it will be a different development process. We have to develop options with much more detail around them, and then decisions can be made. You will be aware that the Chancellor and the Prime Minister have asked the Department to lead the development of a production report on that for March of next year.

              Q6 Chair: Let’s try to keep the answers tight. What worries me about that is that you are actually saying, “We’ll do the same as we did for HS2.” We were critical, as a Committee, of the lack of proper strategic planning for HS2, so I was hoping to get out of your answer the fact that you were going to do it in a different way, rather than the same way. I am trying to really pull that out, very briefly.

              Philip Rutnam: Let me try picking up on that point, because I think you are right. One of the criticisms that I would take on HS2 is that we did a great deal on the economic case; we didn’t do enough early on to articulate, in a way that really helped to carry with us opinion formers and those with a keen interest, the strategic case. That has to be different, and I think we can do more, early, on the strategic case for HS3. I was just trying to explain that they are at a different stage and it is in a different context. I could talk about Crossrail 2 if that would be helpful, but that project is being promoted by the Mayor principally.

              Q7 Chair: Mr Prout, you have never looked at the options for an HS2, have you? You have never looked at another way of using that money to similar effect. HS2 was a given; you never looked at whether there were other ways of achieving the objectives of HS2.

              David Prout: Yes, we did.

              Q8 Chair: When?

              David Prout: Four extensive reports were published in 2010, 2011, 2012 and 2013. Work was done by Atkins and Network Rail on alternative ways of achieving the objectives behind HS2.

              Q9 Chair: Which is what? Remind me.

              David Prout: The first report looked at different ways of achieving the same objectives using different transport modes, so it compared rail, road and air. The other reports focused on alternative ways of achieving the same objectives through different rail-based approaches—either new conventional lines or upgrading of the existing network. These reports are all published; they are all in the public domain. The strategic case, for example, had a whole chapter on the alternatives to HS2 that we looked at, most recently in 2013. Even David Higgins’ report, published a few weeks ago, looked at alternatives to the eastern leg of the Y for HS2.

              Q10 Chair: You looked at alternative routes, not alternative—

              David Prout: No, alternative approaches—either building a different new railway line or patching and mending, adapting or improving the existing lines.

              Q11 Nick Smith: When looking at HS2, did you look at the possibility of HS3 at the same time and think that it might be a good idea to build up in the north first?

              David Prout: There are two different things, I think. HS3 achieves east-west connectivity. In some of the early work on HS2, there was an S proposal, which linked Manchester and Leeds and then came down to London. It has long been recognised that east-west route connectivity is not as good as it could be. In fact, the common ground between HS2, HS3 and Crossrail 2 is that they all address very long-established problems. The HS2 problem was first addressed by the west coast main line modernisation. The HS3 set of problems was addressed in the work on “The Northern Way”. And the route has changed slightly, but Crossrail 2, or the Chelsea-Hackney line, has been around for 30 years, I think.

              Q12 Nick Smith: I take that point, but the south-east economy is doing very well compared with Wales and bits of the north-west and the north-east. If you were looking at HS2, why did you not think about having HS3 first? That would be my query if I was a northern MP.

              David Prout: Sorry, I did not address that half of your question. The problems that HS2 is seeking to solve are around north-south connectivity and congestion. The question of building from the north—

              Q13 Chair: Is it north-south congestion or commuter congestion? It is commuter congestion.

              David Prout: It is both. It is the north-south train paths—the availability of train paths between our major cities and London.

              Q14 Chair: Train what?

              David Prout: Train paths: space on the railway for trains to run, like landing slots at Heathrow. There is a train path issue—

              Q15 Chair: That is more for commuter traffic.

              David Prout: It is for long-distance and commuter traffic. HS2 takes trains off the existing main lines, and puts them on to a new railway, freeing up space for commuters on the existing railway. Of course, it also creates 18 new train paths per hour between the north and south for long-distance travel. Building the new railway tackles both problems.

              Q16 Chair: But the problem is the commuter problem.

              David Prout: The problem is both. It is the fact that the west coast main line is a mixed-use, extremely busy railway line with long-distance, commuter and freight mixed up together. It is difficult to get any new trains in and to meet the demand of people from Shrewsbury, Blackpool, or north Wales to come direct to London. Secondly, there is the problem of not enough seats for commuters.

              Q17 Austin Mitchell: How far do you evaluate these grandiose projects? It looks as if a Minister has come up with a fantastic idea with HS2 and HS3—why not give them a train across the Pennines, difficult as it is?—and you have to find the justification for it. You produced some fantastic justifications initially for HS2 and then whittled them down. How far do you evaluate grandiose projects such as HS2 and HS3 against real needs? The east coast main line is crowded out; you cannot shove more stuff on it. We are desperate for a direct service to London. The rails north and south of the Humber need to be electrified to serve, in our case, Immingham, which is the biggest port in the country. The rails are not electrified and there is no given date for that to happen. All those problems could be solved by investment now, but they are never evaluated against these grandiose projects, which are plucked out of the air.

              Philip Rutnam: I do not think that is fair or right. We have a rigorous system within the Department of appraising projects to try to ensure that we are, indeed, investing only in things—

              Q18 Austin Mitchell: Analyse the benefits of, say, the electrification of the south bank of the Humber, where the line needs to be reconstructed and where the trains have to go far slower than cars on the motorway. You have evaluated the benefits of investment there and the electrification against the costs and benefits of HS2 or HS3.

              Philip Rutnam: In rail, which is a particularly complicated mode, we find that you typically need to have an investment portfolio of short, medium and long-term things that you are doing. Often—the east and west cost main lines are examples of this—to achieve significant increases in capacity, you need very big investment programmes. In fact, on the west coast main line, now that capacity has essentially been absolutely maximised through the modernisation programme of a decade or so ago, there is no sensible alternative for upgrading the capacity on that route other than building a new line—that was the subject of studies to which David referred. That is a large part of the justification for HS2.

              There are things happening right now to increase capacity on the east coast main line. There are some infrastructure improvements happening, and the planned introduction of the inter-city express programme trains, which we talked about when we last saw you. Taking the infrastructure upgrades and the new rolling stock together, that will increase the capacity that can go into London, the biggest pinch point, by 28%.

              There will be new train paths and, through the franchising process, we have invited proposals for how those paths should be used. So there are things that we can do on the east coast main line, but if you look longer term on that line and predict the growth in traffic that is likely to happen, again you will reach a capacity limit—

              Q19 Austin Mitchell: All those things can be done now. We do not get any benefit at all on the east coast, but Leeds will not get any benefit from High Speed 2 until 2034, and there is overcrowding and pressure on the east coast main line now.

              Philip Rutnam: And these things are happening now. The intercity express programme trains are on order and being built now. The infrastructure improvements that I talked about are happening now: some of them have finished and others are in progress. Leeds will get benefits and York, Newcastle and Edinburgh are all capable of getting benefits from exactly the changes I am talking about.

              Q20 Austin Mitchell: It is high speed in the sky. You are talking about the 2030s.

              Philip Rutnam: We are in a long-term planning business.

              Q21 Austin Mitchell: But I am travelling up and down now in crowded trains that run late.

              Philip Rutnam: To be clear, we are trying to do things now for the crowded trains now. Unfortunately, in railways even that takes some time, but there are things happening right now. Trains are being built in County Durham which will improve the situation on the east coast main line.

              Q22 Stephen Phillips: When?

              Philip Rutnam: The full introduction of those trains will be in 2019. So things take some time on the railways, but things are happening.

              Q23 Chair: Let me ask you the question another way, which might help us on the strategic case. What have you forgone by going ahead with HS2? When you did the strategic overview—you claim you did it, though we were critical—and decided to put this huge chunk of money into this investment, what did that take priority over?

              Philip Rutnam: In fact, as far as the Department is concerned, this is part of a portfolio of investment in the transport network in which investment in numerous areas is increasing.

              Q24 Chair: You cannot have it all; you had to make choices. All we are trying to do is get is some feel for those. What Austin said in a different way from what I just said is that there is probably justification for zillions of pounds of infrastructure investment across the rail network, but you have got to make choices. You have plumped for this £50 billion here, but over what have you prioritised that?

              Philip Rutnam: The Government, and it really is the Treasury which—

              Chair: I know it is a political decision, so I am not blaming you, but what was your advice?

              Philip Rutnam: The Government has been very clear that its investment in HS2 is not at the expense of investment in the existing national rail network, which is also increasing, or in the roads network, which is also planned to increase as was announced today.

              Q25 Chair: There must be prioritisation. Why did the Government go for this?

              Philip Rutnam: My interpretation is that the Government has taken the view that investing in infrastructure is a top priority and, therefore, if there is an opportunity cost, it is in other areas of the capital budget which are not in transport.

              Q26 Chair: I want a bit of honesty, Mr Rutnam. We will come back to where we are on that and whether you live within it and achieve all that you set out to do, but it is a lot of money and there is scepticism—our Report was quite sceptical because we were among the sceptics—about how you determine this as a priority. How did it come about that the Government ended up saying yes to this? That is where we are all leading.

              Philip Rutnam: Because, after many years of study by many of the best experts in the country inside and outside the Department, we see no sensible alternative if the country is to have the kind of rail network that it is likely to need in the third decade of the century and beyond. Yes, it is a very large investment, and it takes a long time to deliver, but we do not see an alternative for north-south connectivity between the great cities of this country to doing something on this scale. That is the reason.

              Q27 Chair: Let me give you a little example that is completely in my patch. Fifteen or 20 years ago, we were supposed to have a DLR extension into Barking Riverside to allow for the development of about 12,000 houses. Along came the Olympics, and priorities then changed. Because we won the Olympics, we decided that access to the Olympics had to take priority over that. That was a priority decision; I did not like it, but it was a priority decision that was taken at that time. We are still suffering from that decision. I cannot believe that you are saying that this Government decided to make a £50 billion investment—much bigger than what we were asking for in Barking and Dagenham—without saying, “We are doing this rather than that.” That is what we are trying to get at. If you did not do that, you are wrong, because that is just the sort of priority strategic planning that we think you should be doing and the NAO Report tells you that you should be doing.

              Philip Rutnam: I understand the challenge. There are many prioritisation decisions that this Department does make, directly trading off uses of resources and capital—even within the rail network, and smaller levels than that. I might ask Clare to give some examples of that in a moment. As far as the decision to provide resources for this project is concerned, I have to say that it was a decision well above my level to invest in HS2 and in other elements of the transport system.

              Q28 Mr Bacon: There are not that many levels above you, Mr Rutnam; you are the Permanent Secretary.

              Philip Rutnam: Believe me, there are. Can I try to help?

              Q29 Mr Bacon: Are you saying that those conspiracy theorists who go on about the secret Government are right? We can only see one or two layers above you.

              Philip Rutnam: I am not going to go there.

              Q30 Austin Mitchell: This brings me back to my original point: the decision is taken and you then find justifications for it by amplifying the benefits. There are benefits that could be secured now by investing in existing track—upgrading, electrifying and improving it. You mentioned the benefits of the east coast main line; that was one of your main arguments for High Speed 2. Those benefits will not come through until 2030. The east coast line is overcrowded now. Last time we talked to your officials, they said, “Grimsby might get a couple more slots on the east coast main line after HS2 is built.” That’s crap. We need those slots and that upgrading now. We need a service across the Pennines. You are now talking about HS3. You could service the Pennines better by adding more trains with up-to-date rolling stock and by reopening the Woodhead tunnel, which was closed for some reason after being built after the war. Why do you not do the investment now to improve the railways?

              Philip Rutnam: I am clearly not getting my point across that we are doing immense amounts of investment now. We do have to make prioritisation decisions. I will ask Clare to give some examples of when we prioritise within the Department.

              Clare Moriarty: Within the overall enhancements programme which Network Rail is delivering, prioritisation decisions were made in order to arrive at that programme. The Department specifies in terms of the outputs we want. The sorts of thing that we were prioritising in 2012, when the current programme was being put together, were things like commuter journeys. We asked Network Rail to provide 140,000 additional commuter places into both London and major northern cities in the peak-hour period.

              Q31 Chair: How did you decide on 140,000?

              Clare Moriarty: A huge amount of work goes on in route strategies and through forecasting—looking at the demand that exists, how demand is developing and the long-term forecasting of what we are likely to need. Priorities were also set in terms of electrification and improving connectivity in the north. All of that goes into the current programme, which includes a huge amount of investment in the north of England, electrifying in the north-west, the North TransPennine route and £240 million of investment for the east coast.

              Chair: We are interested in trying to stand back from this and ask, “How do you get to these decisions? Are they rational?” The evidence so far and the evidence in the Report is that no comparison is made and the decisions are not well thought through. That is the challenge here.

              Q32 Mr Bacon: If you were doing it on the back of a fag packet—that is how the early stuff on HS2 was done, or certainly how it appeared to have been done—it is perfectly reasonable to suppose that your fag packet calculation might have said, years ago, “Do you know what would make the most difference to the north, economically? A northern powerhouse—HS3.” You might very well rationally have said to yourself, “You know what? It would be much better to do an east-west link in the north and to group northern cities prior to doing a further north-south link, because if you look at the map, most of the roads go north-south and are concentrated towards the south-east. It is the same for the rail and the roads.” You might very well rationally have come to the conclusion that it was better to do something east-west a long time ago. Did the Department do work a long time ago to analyse and evaluate that?

              Philip Rutnam: I cannot answer that specific question.

              Q33 Mr Bacon: You can’t answer it? You don’t know?

              Philip Rutnam: I am afraid I cannot answer on what work the Department did on east-west connectivity years before I joined it.

              Q34 Mr Bacon: I am not necessarily talking about many years ago. It is a pretty obvious thing to know about, because it is one of the major options—unless the knee-jerk is so strongly in favour of north-south that one doesn’t bother to think about anything else.

              Philip Rutnam: In my time in the Department, it has done a lot of work on improving connectivity in the north. What we have demonstrated through that work is, first of all—and there is already investment happening that is demonstrating this—the very strong case for upgrading the infrastructure connecting the major northern cities through a programme of electrification and a programme of other enhancements. On infrastructure, there was a programme called northern hub for a long while—now it is called the northern enhancements programme—which is a very significant programme. The recent announcements on HS3 and the report by David Higgins show that the Government believe that there is a very strong case for going further than that and enhancing capacity even further.

              Can I just come back to the comparison between north-south and east-west? There is a very strong case for investment in both, but if you look at where the greatest stress is in quantum on the transport system at the moment in the national rail system, it is the key north-south arteries. Traffic and passenger volumes between the big northern cities and London have roughly trebled since completion of the west coast modernisation programme. The railways are a very significantly growing industry, and the most important artery in the whole of the national rail network is the west coast main line.

              Q35 Mr Burrowes: Mr Rutnam, I presume that you take your individual performance objectives seriously.

              Philip Rutnam: Yes, of course.

              Q36 Mr Burrowes: The first objective says “Promote economic growth by delivering at pace.” That is interesting—it does not just say, “promote economic growth” but says “by delivering at pace.” How would you explain what that means?

              Philip Rutnam: I would say that there is a strong expectation on me that we get on with things. We get on with things to the requisite standards of quality and performance, but we don’t hang around. “At pace” to me suggests a degree of urgency and a certain intolerance, if you like, of bureaucracy—a desire to get things done and see them delivered in the real world.

              Q37 Mr Burrowes: It is there as the first business delivery objective. We spoke about three people above you watching and marking you in your territory. Here we have the head of the civil service, the Cabinet Secretary, the lead non-executive director, No. 10, the Cabinet Office, departmental Ministers and the Secretary of State all performance measuring you on that task. Does that not suggest pressure in relation to starting construction as quickly as possible?

              Philip Rutnam: We are certainly expected to get on with delivering things. There is an impatience to see improvements in the country’s transport system—an impatience that I think has been evident even in the discussion so far. My job is to balance that understandable impatience, which comes at me from political quarters but from other quarters as well, with an insistence on the very highest standards of delivery, because I am also accountable for the use of public money—I think you will find that a little bit further on in the objectives. Part of my role is to manage those conflicting pressures, if you like—pressures that are potentially conflicting—and to try to end up with the best possible result.

              Q38 Mr Burrowes: Yes, but if you have that overriding first objective that an element of pace needs to be seen by all those people I mentioned, how does that square with and relate to the concern in paragraph 13 of the Report, when there was plainly a great advantage in delaying the start of full operations, to the tune of costs reduced by £1.1 billion by the delay? How are you able to tell those masters that you are not delivering at pace in those circumstances?

              Philip Rutnam: You have to have an intelligent discussion with them that is informed by the best possible evidence. I think you are referring to the decision to re-profile Crossrail.

              Mr Burrowes: Yes.

              Philip Rutnam: That decision delayed it by a year, saved £1.1 billion in capital costs, allowed the capital envelope to be reduced significantly and added to the contingency. It also meant some loss or deferral of benefits. I was not on the scene at the time the decision was made, but I would expect to have a grown-up conversation with those to whom I am answerable about the choices that were made. My job is to offer the best possible advice and the best possible set of options.

              Q39 Mr Burrowes: Have you had that grown-up conversation about HS2? Can you point to examples of where you have said, “Actually, in this situation, we can’t go at pace”?

              Philip Rutnam: You wouldn’t expect me to go into my advice to Ministers in this Committee. However, you can be assured that I take my responsibilities as accounting officer on this project and on other things extremely seriously, and I give whatever advice is necessary to Ministers about how to progress this project in a way that delivers good value for money for taxpayers. I am not going to go into a lot of detail, but we have already discussed—

              Chair: We might want a bit of detail. You go on; I want a bit more detail on that.

              Q40 Mr Burrowes: I do not want to direct the conversation, but can you give an example, in relation to HS2, of where your emphasis on ensuring that there is proper consideration of integration risks and that operational costs do not go in the wrong direction has made a difference?

              Philip Rutnam: I am not going to go into specific examples of advice that I have given to Ministers. I will talk about things we have done that have helped to move the project emphatically in the right direction. Some of those things are alluded to in the Report. The strategic case that we produced—

              Chair: After the event.

              Q41 Mr Burrowes: What I am asking is this. You said that you have learned lessons from the other projects and that the pace needs to change—it needs not to go so fast. Can you give us any examples?

              Philip Rutnam: Let me put it this way. I am very supportive of the work that is being done right now by David Higgins and Simon Kirby to ensure that the preparation phase for the project is properly conducted and fully thought through. They must take the opportunity to find the best practice for implementing projects such as this and they must take the time needed to get those things right, rather than rushing to procurement. David, you might want to add to that. 

              Q42 Mr Burrowes: Sorry, I have not quite finished. You said that you are concerned that we learn those lessons, but you have not yet told us about any elements of the HS2 project that have not proceeded at the ordinary pace because of your concerns. Do you have any examples of anything in the project that will lead to that?

              David Prout: The key thing we have done is to bring forward the elements of the programme that were traditionally left until later to ensure we can deliver at pace. For example, we put in place the construction chief executive at HS2 Ltd much earlier than we did for Crossrail, for example, where it waited until after Royal Assent. We are putting together the construction company for HS2 Ltd at the moment and we are recruiting the people who are actually going to build the railway now. We do not want to get to Royal Assent and run at it at 100 miles an hour. We are doing the preparatory work before Royal Assent, and we are putting in place the company that will build it so that when we get Royal Assent we will be able to come out of the blocks quickly. Traditionally, we would do it sequentially. We would wait until Royal Assent and then start building the company, but that leads to it being concertina-ed.

              Q43 Mr Burrowes: What is the cost of that concertina effect?

              David Prout: If you left setting up the company until after Royal Assent you would defer the benefits and you would be in danger of rushing at it after Royal Assent.

              Q44 Mr Burrowes: I appreciate that. What is the up-front cost of bringing it together at this stage?

              David Prout: Do you mean what is the cost of starting to build the company?

              Q45 Mr Burrowes: What is the additional cost of front-loading that element of the project rather than waiting for it to happen?

              David Prout: There is no additional cost. It is all within the £21.4 billion envelope.

              Q46 Stephen Phillips: There must be an additional cost. For example, you are currently paying a chief executive of the construction company who, on your evidence, you would not normally have been paying until after Royal Assent had been granted.

              David Prout: That is so that we can deliver the project on time in 2026.

              Q47 Mr Burrowes: I appreciate your rationale, but there must be a cost element to that.

              David Prout: You are bringing spend forward, but you are bringing benefits forward as well.

              Q48 Mr Burrowes: I appreciate that, but I am just asking what that spend is that you have brought forward.

              David Prout: I have not done a calculation of what spend is being brought forward, because everything that we are spending is within the envelope that was set in SR10.

              Philip Rutnam: The general lesson—we have talked about this lesson before in this Committee in other contexts—is that modest amounts of money spent up front in the right way can save very large amounts of money from being mis-spent later. What we are trying to do on HS2 is to apply exactly the lessons that are referred to in this Report on, say, the Thameslink programme, which is a good programme but which was begun before the second phase had been properly thought through. Result—three years’ delay in order to reset the programme. 

              Q49 Mr Burrowes: I am not in any way suggesting that you are going beyond the envelope, or anything like that. I am just trying to ask what that up-front spend is, so that everyone can judge when we come back to it in time, as no doubt we will, that it has been such good value for money. It would be useful to know now.

              Philip Rutnam: I am not sure that it can be identified discretely like that, but it will be a modest amount associated with gearing the company up so that it can be a proper client. It has to be done at some time, and it is being done now.

              Can I give another example of the kind that David was alluding to? On the Crossrail project, only after Royal Assent to the Crossrail Bill, which took three years, was a proper set of legal agreements put in place between the Government—in that case, Transport for London—as the sponsors of the programme and Crossrail Ltd, the delivery vehicle. That was known as the development agreement, and there were lots of ancillary documents. We are putting in place the development agreement between the Government and HS2 Ltd now. It is a legal document to set out respective roles and responsibilities as the foundation of our holding them to account. So things that we are applying in real time to HS2, taking lessons from previous projects, I think are quite a number.

              Q50 Chair: On the envelope, which is another interesting thing, it went up from £33 billion to £42 billion. I am right, aren’t I?

              David Prout: That is correct, yes.

              Q51 Chair: And in that figure is a £14.4 billion contingency?

              David Prout: Yes.

              Q52 Chair: Have you completed the detailed costings on phase 1?

              David Prout: Yes. They are not the most detailed level of costings that we will get to, but we have a good understanding of the costs. They were reviewed most recently by David Higgins when he came in between January and March.

              Q53 Chair: What does that mean? Are they robust?

              David Prout: Yes.

              Q54 Chair: And have you completed the detailed costings on phase 2?

              David Prout: No, because we have not taken decisions on phase 2 yet.

              Q55 Chair: On phase 1, are you eating into the contingency already?

              David Prout: We have used up a small amount of contingency in meeting costs associated with the Select Committee and concessions made to petitioners.

              Q56 Chair: You were talking about £21 billion. If I get this right, it is £42 billion—£21 billion on phase 1, but take off the £14.4 billion which is contingency, so you should not be spending more than £14 billion or £15 billion on phase 1, crudely?

              David Prout: Correct.

              Q57 Chair: Your detailed costing figures at the moment are within that envelope of about £15 billion to £16 billion—

              David Prout: The spot costs are within that. You then add contingency on top of that. One of the reasons, if you remember, when we put up the budget in SR13 was that we went from a P50 level of certainty in terms of our contingency to a P95 level of certainty. 

              Q58 Chair: I don’t know what P50 and P95 mean.

              David Prout: P50 is a 50% chance of coming in on budget. P95 is a 95% chance of coming in on budget.

              Q59 Chair: So you have got 95% certainty that you will come within £15 billion?

              David Prout: No, within £21.4 billion for phase 1.

              Q60 Chair: So you will use the contingency?

              David Prout: You are likely to use a large chunk of the contingency, yes. Crossrail is using a large chunk of its contingency.

              Q61 Chair: I know, but this was a particularly generous contingency. The figure went up from £33 billion to £42 billion.

              David Prout: As David Higgins said when he issued his report in March, it is adequate but not generous.

              Q62 Chair: I think he was used to the Olympic-style contingency, which I thought was excessively generous.

              David Prout: It is not an overly generous contingency, but as I say—

              Q63 Chair: £14.2 billion of £42 billion. That sounds very generous to me.

              David Prout: But it is a quantified risk assessment—

              Q64 Chair: Are you telling the Committee—Mr Rutnam, you are the accounting officer for this—that, given the level we are at and the detailed costings, because this is all about planning properly, on phase 1 there will be enough money to complete the entire project, the important thing for me being phase 2, within the envelope set by the Chancellor?

              Philip Rutnam: That is indeed absolutely the intention.

              Q65 Chair: The whole project will be completed within that envelope.

              Philip Rutnam: That is absolutely the intention. Obviously, phase 1—

              Q66 Chair: It is the intention. Are you confident you will achieve that?

              Philip Rutnam: Phase 1 is at a more advanced stage than phase 2, but we fully expect to achieve that across both phases.

              David Prout: For phase 1 we have a fully costed programme that comes in at £21.4 billion—

              Q67 Chair: I keep worrying about the £21.4 billion. You are using the contingency within your calculations of how much it will cost.             

              David Prout: Yes.

              Q68 Chair: I have never seen a major project of this sort come in at the sort of figure that is set before it has even gone out to contract. You are saying to me absolutely confidently that although we are using all the contingency, we will come in within £21 billion.

              David Prout: That is why we have set the contingency at the P95 level—a 95% chance of coming in on budget. That is what accounted for between £4 billion and £5 billion of the uplift in the summer of 2013, so we went from a P50 contingency to a P95 contingency. That is one of the things that pushed the costs up in 2013, so we can say with a 95% degree of certainty that we will come in on budget.

              Sir Amyas Morse: May I ask for a tiny bit more detail? If I have got this straight, estimating that you are going to have a 95% level of confidence about costs now means that you have a kind of snake of what it might come out at, but within that you reckon you can be sure of achieving that ceiling at the top end of the probability. It could be lower. Is that right?              David Prout: Yes, it could.

              Sir Amyas Morse: What you are saying is simply that that’s the top end of the probability range. So you are not assuming that you will spend that much; you are simply saying that that is the range.              

              David Prout: Yes.

              Sir Amyas Morse: I wanted to say that for clarity. I have a more specific question that I am genuinely interested in. Since you have been looking at the costs of this, how does the inflation rate on your projects costs here—I am used to finding funny little local inflation rates in defence and other areas—compare in terms of growth with what you might find is a general rate of inflation? Is it faster? I am not leading you anywhere; I am just interested in knowing what the answer is.

              David Prout: We use the Treasury’s inflation rates.

              Sir Amyas Morse: I know you do for projection, but I am asking you about the period you have been looking at cross-growth. Does it tend to give you confidence about that, or do you think you have a rail inflation rate that tends to run a bit higher? What do you think?

              David Prout: It depends on the overall economic circumstances. Crossrail benefited when it went out to the market.

              Sir Amyas Morse: This is not a trap. We generally find in some areas of Government activity, despite the general level of inflation, prices actually go up fast.

              Q69 Chair: Especially in construction.             

              David Prout: It can do, and one thing the Chancellor has asked David Higgins to do, which he is working on at the moment, is to go all over the world—

              Chair: Lucky him.             

              David Prout: Not him personally—to understand the different construction techniques they have used to bring in this kind of project at a lower cost per kilometre.

              Q70 Chair: I have a final question, then I will go to Nick on this because I am much more sceptical of your costings. For example, from my reading in preparation for today, I understand that the HS2 route crosses more than 100 water courses with a degree of flooding risk attached. Have you fully assessed the impact of that on your costings?

              David Prout: Yes. We have planned to a 1000-year flood risk assessment.

              Q71 Chair: For all these areas of flood risk?

              David Prout: Yes.              

              Q72 Chair: So you are sitting here in front of us telling us that the whole of HS2 will be built, as planned, in the Chancellor’s envelope of £50 billion?

              David Prout: That is what I am saying.

              Chair: I don’t believe it.

              Austin Mitchell: Come back—we’ll see you in 2034.

              Q73 Nick Smith: I am interested in the issue of this transport infrastructure investment and employment in surrounding areas. That is because my constituency is 25 miles from the major jobs market, down the M4 corridor in south Wales in Newport and Cardiff, so I need to get my constituents down there as soon as.

              Listening to your reply earlier to Mr Bacon about HS2 before HS3, I just did not find it convincing. I am in favour of HS2—I think it is a good thing—as I am in favour of HS3. However, given that the south-east is bubbling and has massive housing inflation, and all the rest of it, I just think that if the two projects had been considered in the round at the time—two separate fag packets, perhaps—maybe there could have been a debate about the best place and the best time to spend that amount of money. I do not remember that debate at the time and I think there is an issue about very large scale public procurement projects such as this and sensible consideration about priorities. Given the slowness in the delivery of the valleys electrification, I sometimes think that areas such as mine are being left behind because of very good business lobbying, particularly in the south of the country.

              Having said that, I am interested in how you are developing your analysis and management and promotion of good economic benefits around these proposals. The NAO Report—paragraph 16 on page 9—recommends a single organisation being responsible for delivering wider benefits. The example given is that Ebbsfleet was built as part of HS1, and do you know what? It was supposed to be a great place for economic regeneration, and that has not happened. What happened there? What are you going to do for future investment to make sure that we do not have any more Ebbsfleets around the country and that there are wider economic benefits, please? Lots in there, I know.

              Philip Rutnam: I shall comment on that, then David might want to add something.

              We are very seized of this issue. As you know, HS1 is, I think, a big success story in relation to regeneration at King’s Cross and Stratford. It is, to some extent, at Ashford as well—less so, at the moment, in respect of Ebbsfleet. The Government are bringing forward proposals for an urban development corporation at Ebbsfleet.

              Q74 Nick Smith: Way late.

              Philip Rutnam: But we would all like to have seen regeneration much earlier.

              We are seized of that issue on HS2. There was a growth taskforce chaired by Lord Deighton, which reported earlier this year and came up with a bundle of recommendations, including about regeneration and the need—essentially—for a more active approach, to make sure that regeneration happens. We are in the midst of coming to, I hope, some conclusions about how to take those recommendations forward.

              Q75 Chair: Give us a hint there, because I think this is a really important area. We are not trying to get into anything confidential, but given that a great justification of HS2 is the economic benefits and given, again, that the record shows we did not achieve them in HS1, what are you doing? What will be different, Philip?              

              Philip Rutnam: Announcements have not been made. The Deighton recommendation was that—

              Q76 Chair: Ah! Give us a clue.

              Philip Rutnam: It was that a single national body should take responsibility—not for doing all the regeneration but for promoting, encouraging and facilitating the regeneration around station sites.

              I will hand over to David, who has been working very closely on this, to see what he can add.

              David Prout: Lord Deighton came up with four groups of recommendations: getting the station places ready; getting the network ready; getting people’s skills ready; and getting business ready to compete for the HS2 contracts. He made 19 recommendations; the Government accepted 18 of them. As far as the regeneration recommendations are concerned, I think there were two most important ones. The first was around the importance of thorough preparation by the local places for the arrival of the new infrastructures.

              One of the great bits of learning from all the continental experience of high-speed rail is that local places have to plan for it up front so that, when the station is being built, they are already starting to build new infrastructure and new buildings around the station to make the most of high-speed rail when it arrives. Local places have to plan for that and put it in their local development frameworks.

              Q77 Chair: Who pays for that? Is that in the £50 billion?

              David Prout: It is a local authority duty.

              Q78 Chair: With no money?

              David Prout: They have funding for local development frameworks. Planning for their area is one of their duties, but the Department has made some funding available to help them with that.

              Q79 Chair: Which Department? Yours?

              David Prout: Yes. We have made £2.5 million available to Birmingham—

              Q80 Nick Smith: Was that £2.5 million?

              David Prout: Yes, £2.5 million, not £2.5 billion.

              Q81 Nick Smith: That is my point.

              David Prout: We made £2.5 million available to Solihull and Birmingham to help them plan for the areas around the two station sites. The second thing that we are looking at is how we can put in place an organisation of some kind that can work with local places on stuff like land assembly and specialist planning around the stations to drive the regeneration faster. We have not yet reached conclusions on that, but we are advising Ministers at the moment.

              Q82 Chair: By whom will that be funded?

              David Prout: It will be funded by the Government.

              Q83 Nick Smith: So I have thorough preparation, an organisation to help with land assembly and one other organisation. That feels a bit thin from this side of the table.

              David Prout: There are questions about whether we want to go further, and we are working across Departments, particularly with DCLG, on whether we need to go further. The Government has put in place an urban development corporation at Ebbsfleet that has a bunch of special powers and additional funding. The Mayor is consulting on a mayoral development corporation at Old Oak Common, and he has put in place a new director for that mayoral development corporation.

              There is a question about whether such additional structures are required, for example, in Solihull and Birmingham, but the first port of call has to be the local authority, which has all the powers that an urban development corporation would have. The question is whether the local authority can use those powers adequately to plan around the stations.

              Q84 Mr Bacon: In retrospect, do you think that with High Speed 1 it would have been better to have done some of this work earlier? Is that essentially one of the lessons that you are talking about?

              David Prout: Yes, of course. That is what we are doing on HS2. We have learned the lesson that we need to be working with the local authorities at this stage to get the places ready for the arrival of the stations. That just wasn’t done at Ebbsfleet. Some things were done at Ebbsfleet, and there is a bridge over the railway line at Ebbsfleet waiting for the roads to be built around it. There was some planning at Ebbsfleet, but not enough.

              Q85 Mr Bacon: You still haven’t really dealt with Mr Smith’s follow-up to my question on the decision to go with HS2 before HS3. Although, Mr Rutnam, you have said that there is enormous pressure on the north-south axis, which has grown enormously and which you need to alleviate, the point Mr Smith was making is that if there were investment elsewhere, it might take off that pressure because it would alter people’s travel patterns and investment decisions.

              If, for the sake of argument, Mr Smith’s constituency were much better connected and much easier to get to, there would be corresponding effects on people’s willingness to invest in Mr Smith’s constituency. This is not a zero-sum game, is it? There are effects from having done things, yet we do not seem to have heard an explanation from you about why an evaluation of what would be done east-west, HS3, did not come earlier.

              Philip Rutnam: Perhaps I will try again. In prioritising the decisions that they have made, the Government have been responding to the fact that the greatest single source of pressure on the national rail system, considered as a national system, is north-south connectivity, especially around the west coast main line, which to all practical intents and purposes is now full, certainly in terms of train cars.

              The west coast main line is the single most important artery in the country’s rail system, and arguably in the country’s transport system. It connects a high proportion of our biggest cities and carries a very high proportion of the country’s rail freight. At the southern end, it is also a key commuting artery into London. All those different users, because it is a multi-user railway line, will benefit from the investment proposed in HS2. The prioritisation decision, from a transport perspective, is responding to the fact that it is the single greatest source of pressure in the long term. It is not the only source of pressure; there are many other projects, such as HS3, that the Government are taking forward as well.

              Q86 Mr Bacon: I see Mr Phillips itching to come in. I have two quick questions first. One, if I get you right, you are basically saying that, because of what you have just said, addressing the issue of capacity was absolutely essential; there really isn’t any choice about it. That is basically your position.

              Philip Rutnam: If we want to ensure that the country’s rail system, two decades hence, 2026 and beyond, has the kind of capacity needed to meet the demand of the population and economic growth that we foresee, then HS2 is the very large investment needed to respond to that. That is all I am saying. You are right that that is about capacity.

              Q87 Mr Bacon: Why, then, did the Department not talk about capacity to start with, but instead talk about speed?

              Philip Rutnam: I think that the Department may have talked more about speed—

              Q88 Mr Bacon: The whole case was about speed.

              Philip Rutnam: No, that is not true. If you look, as I have done, at the documents and the statements made by Ministers and issued by the Department then, they talked very clearly about both capacity and speed; journey times as well as capacity. What we have learned, and what we have discussed before, is, in terms of the strategic case for the project, for us to put those long-term arguments about the need to have a transport system that has the capacity to respond to population and economic growth and to facilitate further economic growth front and centre.

              Q89 Mr Bacon: Another quick east-west question. I heard someone recently—a Treasury Minister, I think—talking about an evaluation going on of upgrading the line between Oxford and Cambridge to make it much quicker. Can you tell us where that currently sits?

              Philip Rutnam: It is the east-west rail project. Clare, do you want to speak about that?

              Clare Moriarty: Part of our current investment programme is around east-west rail, starting with the Oxford to Bicester end of that line, which is currently being upgraded to make it dual track, and then extending that through, initially to Bedford. There is a more significant challenge in the last bit from Bedford to Cambridge because much of the original track has been built over so it is not a question of simply reinstating lines. That is one of the significant elements of our current investment programme.

              Q90 Mr Bacon: Hang on, I want to pursue that. The proposal, then, is eventually to get it to Cambridge if you can, but you would have to go around the original route because it has been built on. Is that what you are saying?

              Clare Moriarty: There is work going on to look at options. Whereas for the more western sections it has been possible to reinstate lines on the existing tracks—

              Q91 Mr Bacon: Does the work include an evaluation of continuing on from Oxford, through Cambridge to Norwich?

              Clare Moriarty: As far as I know, it doesn’t at the moment, but there is a lot of work also going on around routes from London to Norwich in particular.

              Q92 Mr Bacon: I am not talking about London; I am talking about Oxford, through Cambridge to Norwich. The thing that particularly interests me is Cambridge through Norwich. Do you know where the largest concentration of food and plant scientists on the planet is?

              Clare Moriarty: It is probably in Cambridge.

              Mr Bacon: No, it is Norwich. It is not probably Cambridge—it is Norwich, and that is my point. The fact that you don’t know that worries me slightly, but I hope you will go away and investigate it. There are biotech incubators going on in Norwich.

              By the way, and Mr Gallaher will know this, you have put £26 million into the John Innes centre to improve the internal connectivity and to ensure that people are talking to each other in the Norwich research park, which we very much welcome. However, the point is that you can have an established business in Norwich near the incubator where the rent is much lower than you would pay for even an incubator in Cambridge because Cambridge is so over heated. The obvious thing to do economically is to extend the quality of the connection between Cambridge and Norwich, particularly the Norwich research park. I would encourage you to go away and get your colleagues to look at that because the economic benefits are colossal. You may know that the A11, which, admittedly, is a road network, had a benefit to cost ratio of more than 20:1.

              Chair: That was a very good—

              Mr Bacon: You mentioned Barking and Dagenham. The only difference that I can see is that that was your constituency.

              Chair: That was because they took a decision on priorities.

              Q93 John Pugh: Can we start with fundamentals? Years and years ago I went to the fundamentals of the whole railway scheme, and they said that you always need to have a business case. I asked what a good business case looks like, and I was not given too clear an answer. I was quite encouraged when I read in the Report that your way of doing cost-benefit ratios is well regarded internationally. The Report says somewhere that you have a “clearly-defined method”. Does that mean that any third party coming along and looking at these schemes later on can check with some clarity and transparency that the business case has been met or not and that the cost-benefit ratio is either spot on or far away?

              Philip Rutnam: Yes, that should be possible.

              David Prout: There is even a handy guide for local authorities that explains our methodology. My 17-year-old daughter was reading that as part of her economics—

              Q94 John Pugh: Your 17-year-old daughter understood it.

              David Prout: Yes, she did. It is now extremely transparently set out and the guide was published earlier this year.

              Q95 John Pugh: One thing that the NAO Report says is rather difficult to grasp in railways is the interdependencies. It cites the instance of Thameslink being built and the carriages not being there or not being ready. We have a similar example now with the Todmorden curve being open and there not being any trains to run on it. Do you believe you are in a better position to grasp these interdependencies than you ever were and, if so, why?

              Clare Moriarty: It is certainly something that we are building our capability on at the moment. Any bit of rail investment is likely to have three elements—

              Q96 Chair: Sorry to stop you, Clare, but what does that actually mean? We know why we need interdependencies working, and we know that it has been a failure in the past. In this attempt to look forward, we want to know what you are actually doing to make it better.

              Clare Moriarty: Okay. I am setting up a specific team within the Rail Executive to manage interdependencies so that I have one set of people not charged with delivering things, but specifically charged with ensuring that we understand—

              Q97 John Pugh: They are watching the knock-on consequences of project development.

              Clare Moriarty: Exactly. If something happens in a bit of the infrastructure that will have consequences for rolling stock, they are looking at that. They are looking at how we ensure that we deliver the benefits of that through franchising. That is a team that started being set up in April. It has an increasing number of people so that we can have a team for each of the major parts of the country. Their entire mission and purpose is to ensure that we join those things up.

              Anyone who sees a change happening in their part of the programme needs to come and talk to these people so that we can understand how individual bits knock on and the broader picture. There are some wide cross-cutting themes such as driver training. Lots of different projects create a need for further driver training. If we look at that in individual pockets, we will not understand the totality of what we need to do.

              Q98 John Pugh: Just following that a little—this may not seem immediately related—do you agree with David Higgins, who said in this building last week that there is no reason why HS3 should not proceed at the same time, if not slightly before HS2, because they are different sorts of beasts? One requires a hybrid Bill; the other does not. Do you agree that both can, in a sense, be progressed together and that we do not need to wait for one to finish to start the other?

              Clare Moriarty: It comes down to the work that needs to be done, as Philip was saying, to understand what the options are around High Speed 3. A lot of very practical work needs to be done to look at different options, different routes and costs and benefits.

              Q99 John Pugh: But broadly speaking, you are not disagreeing with it.

              Clare Moriarty: I do not think I could sensibly give you an answer until we have done slightly more of the work.

              Q100 John Pugh: I was just wondering in terms of interdependencies whether, should HS3 progress in a particular way and you see some of the effects and you revise your cost-benefit analysis as you go along, that will have an impact on the cost-benefit analysis for HS2. In other words, there might be less need for HS2 emerging as you develop HS3.

              Clare Moriarty: There is always the potential for—

              Q101 John Pugh: The NAO says that you should keep under review the cost-benefit analysis, does it not?

              Clare Moriarty: Yes. There is always the potential for changes in one project to impact the cost-benefit analysis of another, just as changes in the economy will also cause us to revisit and review the benefit-cost ratio.

              Q102 John Pugh: In terms of progressing HS2 and HS3 together, there will be an enormous drawdown on the skills of the nation, won’t there? Frankly, we probably do not have them. Have you got them in the Department? Have you any capacity within your Department to manage progress on HS3 and HS2 simultaneously?

              Philip Rutnam: We are absolutely seized of the need to make sure we have that capacity in the Department. I have been in the Department for two years and a bit, and in that time I have made sure, recognising the challenge, that we have significantly grown our capacity in the HS2 group and in the rail executive.

              Q103 John Pugh: I notice that none of you has a civil engineering background. Am I right in thinking that?

              Philip Rutnam: That is correct, yes.

              Q104 John Pugh: But you are hiring people who have the appropriate civil engineering background?

              Philip Rutnam: We have some people with civil engineering backgrounds. We have many other people with many other skills which are equally pertinent: skills in project and programme management, finance and transport planning, and skills as generalist civil servants.

              Q105 John Pugh: With this awesome prospect in front of you, are you recruiting more people who can manage two really big projects at the same time?

              Philip Rutnam: Yes. There is a range of skills I am interested in expanding within the Department, but the skills I am most interested in expanding are those needed to be a really effective sponsor or client of big projects—including HS2 but also, prospectively, HS3.

              Q106 Chair: What does that mean, Mr Rutnam?

              Philip Rutnam: That means the sorts of skill that people have who are really good at project and programme management and who have practical experience of projects and programmes—yes, successful ones, but perhaps also less successful ones, because there is no better source of experience than things that did not go quite to plan. It means people with good commercial understanding, and people with good stakeholder skills and the ability to understand how another party sees something. That is a range of skills, but we are not usually building things directly ourselves. We are a client and sponsor.

              Q107 John Pugh: Clare, if you are keeping an eye on the interdependencies, can you say at the moment which skills the nation most needs, or currently most lacks, in order to accomplish this very big forward-looking railway agenda?

              Clare Moriarty: The single major area of skills is signalling. If you look across the totality of all our infrastructure projects, signalling is the scarcest resource.

              Q108Chair: Out of interest, on your answer, are you recruiting outside or inside?

              Philip Rutnam: We do both.              

              Q109Chair: And what have you done in the last six months? Or something—give me a time. I just pulled that out of a hat.

              Philip Rutnam: I will ask my colleagues to add, but in the last six months we have made a permanent appointment of a franchising director to be responsible for franchising—

              Q110Chair: No. Presumably you have recruited for all those skills, which we think are really important; I concur with your description of them. But are you getting them from inside and growing them inside, or are you getting them from outside? They are not just the top bods that you have banged on about.

              Philip Rutnam: Okay. I will ask my colleagues to comment.

              Clare Moriarty: To be honest, I think it is a complete mixture. We have a lot of people coming into the rail executive at the moment. The last time I sat down with our new entrants, they were a mixture of people from within the Department, elsewhere in Whitehall and from—

              Q111Chair: But these are young new graduates, a couple of whom we saw when we went around Crossrail. They will be in and out of the project. I did not feel 100% confident that they could provide you with the sort of procurer skills that you described.

              Clare Moriarty: I think it is a mixture, to be honest. We have people coming in with quite a lot of experience from the rail industry. We have people coming in from other related sectors.

              Q112Chair: Yes, but they are new people.

              Philip Rutnam: Not all of them. I meet every new starter in the central Department. In the last two weeks alone, I think I have met one reasonably senior person who has come out of Network Rail—a very capable individual at project manager-type level—and another very experienced person who has come out of a train operating company. I am also really keen to grow talent from within the civil service to give people at an array of different levels the ability to work on programmes like this.

              Recently, for example, we started our own fast-track scheme, called the commercial fast-track scheme, to hire new graduates. We took in 10 or nine, I think, in the autumn and will give them experience over three years or so of various different parts of the Department’s work as sponsor and client of big programmes. We also expect them to acquire a qualification. We are doing a variety of things.

              Q113 John Pugh: I am a former member of the Crossrail Hybrid Bill Committee, so I am slightly embittered. You must factor that into my question. [Interruption.] I know; I was given a clock at the end of it.

              On page 32, the NAO Report says “The Department also entered negotiations with individual organisations”—this was Crossrail—“but did not secure all the contributions that it initially expected, in part due to regulatory decisions. It may have to contribute an extra £160 million.” Elsewhere in the Report, it says that the Department has to be more responsive to unexpected events. Was this an unexpected event? Who did not contribute, and why?

              Clare Moriarty: In the planning that was done, there was an expectation of a figure from Heathrow airport, which was always subject to regulatory approval by the Civil Aviation Authority. As that process worked its way through, with their business case, the amount that the CAA eventually determined was £70 million. The Department had made provision in its planning for the eventuality that the CAA might not approve the contribution—

              Q114 John Pugh: So you were ready for that, but nonetheless Heathrow did not cough up with all that you expected.

              Clare Moriarty: The amount eventually approved was less than the amount that we had originally hoped for.

              Q115 Mrs McGuire: Since everybody else has talked about their own geographical patch, I am going to ask you some questions about the extension, or the potential work being done, on the Scottish end of HS2. There has been significant pressure, I think, as you have been aware, about whether or not Scotland should have been included in this long-term visionary strategy that Ms Moriarty talked about. I understand that the Department is currently in discussions with the Scottish Government on extending. I wonder whether anybody could give us an update on where we are with that and what the impact will be on costs.

              David Prout: That work is ongoing at the moment. I think that the fact that—

              Chair: I hate those phrases. Just tell us the truth.

              David Prout: The fact that it was commissioned is in the public domain and the commission is recorded in the remit letters to HS2 Ltd. Our teams have been discussing it with Scottish Government officials. We are not yet ready to put advice to Ministers, but I should think we will be ready in the foreseeable future. I think it is a few months off.

              Chair: So it is going on at present and you are ready in the foreseeable future. Just try telling us something a little bit more direct; you will endear yourself to this Committee by doing that.

              Q116 Mrs McGuire: When was the report commissioned? I understand that it was anticipated earlier this year—as a matter of fact, I think it was at the beginning of this year—so perhaps you could advise the Committee when the report was actually anticipated. I remind you that I have access to a press report here.

              David Prout: I just cannot remember when it was commissioned.             

              Q117 Mrs McGuire: The press report says it was on 10 November.

              David Prout: We were hoping to have results from it before the summer. The problems are actually a lot more complicated and difficult than we were anticipating. It is a very long way between the north end of HS2 and Scotland. To build a high-speed rail line the whole way would be extremely costly. We are looking at strategic interventions to reduce the travel time to—I think the target is below three hours, from Glasgow to London.

              Q118 Mrs McGuire: Having said that, it is not just about Scotland. It links into some of the questions that my colleagues asked earlier. It is also about the north of the country. So it is not just across the border.

              If I can advise you, according to the Scottish newspapers, UK Ministers today appeared to have made some announcement about the report.

              David Prout: Today?

              Q119 Mrs McGuire: Yes, well, unless this is not 10 November 2014; it certainly was today. I have my good friend here to say—it is about the commitment to have HS2 to Scotland. As I say, it is not just about the Scottish economy, given the fact that one of the benefits of HS2—I think it is in the NAO report—is that it should be an engine for growth. However, surely if a strategic vision is being taken about engines for growth, it should have included a Scottish dimension from the beginning, as well as other parts of the north of England.

              David Prout: And Scotland will benefit from HS2 from the moment that phase 1 of HS2 opens.

              Q120 Mrs McGuire: Yes, I know that it will take half an hour off the journey time—I know the script.  

              David Prout: I think I am right in saying that when phase 2 is open, journey times to Glasgow will be down to just over three-and-a-half hours, and the aim of the study that we are doing with the Scottish Government is to bring it down to under three hours.

              Q121 Mrs McGuire: What joint work is the Department currently doing with the Scottish Government on the possibilities—not just in the foreseeable future, but what joint work is currently being undertaken?

              David Prout: There is quite a detailed options assessment, which is being worked up by engineers at HS2 Ltd in consultation with my team and the Scottish Government. 

              Q122 Mrs McGuire: So that is current.

              David Prout: That is ongoing at the moment.

              Q123 Mrs McGuire: When did you say we anticipate the report—in the foreseeable future?

              David Prout: I said in the foreseeable future, but I don’t think it will be before Christmas—in fact, I know it won’t be before Christmas.

              Q124 Mrs McGuire: That is only five weeks away—so not before Christmas, but might we expect it after Christmas?

              Chair: After Christmas, there is a whole new year.

              David Prout: We have to put advice to Ministers on the issue.

              Q125 Chair: When are you putting advice?

              David Prout: When the study is concluded.

              Stephen Phillips: In due course?

              Q126 Chair: You must have a plan. We understand that Ministers may take it to and fro, but saying, “When it is ready” just isn’t good enough. It doesn’t work on this Committee—it might work elsewhere, but it doesn’t work here. Tell us when you are going to put advice to Ministers.

              David Prout: I don’t have a date.

              Chair: Well, that is pretty shocking.

              Q127 Stephen Phillips: When do you estimate?

              David Prout: I have not touched base with my team on that in preparation for this meeting.

              Chair: Okay, well you can write to us.

              Stephen Phillips: Well, let’s run it up the flagpole and salute it. When would it be? What is your best guess?

              Q128 Chair: When are you putting advice to Ministers? That is what we are asking.

              Philip Rutnam: I don’t think we want to give you guesses. We will write to you following this meeting.

              Q129 Chair: With a date, or a month.

              Philip Rutnam: With whatever we can say, both about the substance of where the work has got to and the plans for taking it forward.

              Q130 Austin Mitchell: Talking of jobs, what proportion of the high-speed rolling stock for HS2 and HS3 will be made in this country, and what proportion will be imported?

              Philip Rutnam: Work on the rolling stock for High Speed 2 is still at a very early stage. HS2 Ltd will go through a proper planning process and procurement process for the rolling stock. That procurement process will be open and will comply with European Union rules, which we talked about the last time I was here.

              Q131 Austin Mitchell: You said you could not stipulate for British production. 

              Philip Rutnam: That remains the case. We cannot stipulate and have no intention of stipulating that the rolling stock—

              Austin Mitchell: You can lean on them for British production.

              Philip Rutnam: —will be built in the UK. What I would say is that the Government, as shown by—

              Q132 Chair: You could stipulate it, actually. You could make it a condition of contract. Thinking on my feet—it just makes me so cross when people use Europe as an excuse—you could say, in the contract, in the tender documents inviting people to tender for this work, that, whether it is a German or a French company, they have to produce the stuff here. There is nothing to stop you doing that.

              Philip Rutnam: I am sorry. I disagree with that.

              Q133 Chair: Well, I am telling you. In my understanding of European law, there is nothing to stop you doing that.

              Philip Rutnam: We have looked at this and the best advice we have is that we cannot stipulate, compliant with European law, that goods are produced in the United Kingdom.

              Q134 Mr Bacon: Get another lawyer. That is what you do with economists and technicians—

              Philip Rutnam: I have tried that before and it does not give you a different answer on that particular question.

              Chair: You make it a condition—

              Philip Rutnam: Shall I try to be more positive, perhaps, from your perspective? There are things we have done and that we can and will do with HS2 Ltd to seek to make sure that the greatest possible economic value for the UK is derived from this process. Things were done in the procurement for Crossrail rolling stock, for example. I am giving these by way of examples, rather than saying that this is policy for HS2 rolling stock. The procurement for Crossrail rolling stock was to include within the tender documentation points for some element of value in the evaluation for the proportion of the work that is subcontracted to SMEs. So the use of SMEs can attract points in the evaluation, as can the employment of apprentices. Both of those, by the way, need to be done in a non-UK-specific way. I give them by way of example.

              Something else that has been done is not to stipulate that the rolling stock needs to be made in the UK, but to ask for information from bidders as to what proportion of the contract value will be sourced from within the UK, and then to be clear that that is a percentage that would be monitored. Not a stipulation, but a monitoring requirement.

              You may wish us to go a great deal further, but I repeat that the best advice we have is that for us to stipulate that goods that are bought by the public sector in the UK have to be produced in the public sector is, with certain exceptions in defence and national security, not compliant with European law.

              Q135 Chair: The French buy all theirs in France. The Germans buy all theirs in Germany. They have to comply with European law, too.

              Philip Rutnam: This is a topic we discussed last time. It is a matter of contention whether it is true that the French and Germans buy all their trains from French and German manufacturers.

              Q136 Chair: Manufactured within France and within Germany.

              Philip Rutnam: I went back and looked at some of the Transport Committee reports following the Thameslink rolling stock procurement in 2011. I looked into this question and at some of the evidence that was submitted, and it offered different points of view, so I do not think one should just accept—

              Chair: Well, it is either true or not true.

              Q137 Mr Bacon: When you say “best advice”, from whom did you get this advice?

              Philip Rutnam: We get our legal advice from the Treasury Solicitor's Department.

              Q138 Mr Bacon: Do they go to outside counsel?

              Philip Rutnam: They do when—

              Q139 Mr Bacon: Did they on this occasion? When you say “best advice”, I want to know who you got it from.

              Philip Rutnam: On this particular point, I am afraid I cannot—

              Q140 Mr Bacon: You have assured us and used the phrase “best advice” several times.  You sounded very confident about that, so I assume from your confidence that you know who you got it from.

              Philip Rutnam: I have been assured a number of times by senior lawyers within the Government service that it is not compatible with European public procurement directives for the UK to impose national obligations on either the ownership of providers of goods and services to the UK Government, or the geographic location of manufacture.

              Mr Bacon: You may be right.

              Stephen Phillips: As indeed this House found out to its cost with the fenestration package for Portcullis House.

              Q141 Mr Bacon: I am just concerned about—By the way, on the subject of the fenestration package for Portcullis House, I was told by the president of the Royal Institute of British Architects that the way they did the windows was so bad and so expensive that it would have been cheaper to have clad the exterior in 7 series BMWs than what they actually did, but I digress.

              You say that you have had best advice, but you cannot tell me whom it is from. The background to this is your own Department’s record in relation to legal advice. One cannot forget the legal advice you were given about the inter-city west coast franchising competition, which told you that your Department’s actions were unlawful and would be open to challenge in the courts. That somehow did not get up to the top of the Department, so the top people acted unaware of that. So you will forgive me if I am mildly sceptical about your descriptions of the legal advice you have had. I want to know from whom this advice came. Presumably, somebody—an outside silk or someone like that—wrote an opinion.

              Philip Rutnam: We are at an early stage on that particular aspect of the project, as I explained earlier. Rather than give you a speculative answer now, I will, if I may, write to you authoritatively about where we have got to in terms of taking legal advice, both on public procurement generally and on this particular project.

              Q142 Mr Bacon: Particularly in comparison with the French and Germans, because, as the Chair says—by the way, she likes all this stuff and I do not—it is apparently the case that the French and the Germans are able to procure rolling stock that is largely manufactured in-country in the way that you say we cannot even specify. There must be a reason for that, and I want to know what it is.

              Philip Rutnam: That is a wider point.

              Q143 Mr Bacon: Not really.

              Philip Rutnam: It is a different point from the question of whether we have taken legal advice on the public procurement directive.

              Q144 Mr Bacon: Indeed, but it is obviously deeply related to the legal advice that the French and Germans have managed to get that enables them to act in the way that they did, which is different from how you seem to think that you need to act. It is not a separate point.

              Philip Rutnam: Can I write to you on that point as well?

              Mr Bacon: Yes.

              Austin Mitchell: Mr Rutnam, you need a different lawyer—I think that Mr Phillips is available for certain purposes.

              Stephen Phillips: For a modest fee.

              Q145 Austin Mitchell: Having wrecked the British train production industry through haphazard and belated ordering in the past, we have a responsibility to rebuild it as far as we can through influencing orders. My question is: who is going to pay for it? As an opponent of HS2, I was rather sad that the Labour party came out in favour of it, which it did largely because of pressure from Labour councils in the big cities—Birmingham, Leeds and Manchester. It might help to alleviate that pressure if councils were told in advance that they will have to pay for HS2 in the same way that an increased business rate paid for Crossrail. Can you assure us that a supplement to business rates in those big cities will not be required to pay for HS2 and HS3?

              Philip Rutnam: I will comment on that point in a moment, but I want to go back to the train-building industry. We are very positive in the Department about the future of the train-building industry in the UK. In fact, only last week the building of a new factory to build trains in the UK was completed in Newton Aycliffe in County Durham. That factory will produce the trains for the intercity express programme and other trains, including some for Scotland that have been ordered just in the past few weeks. We are very positive about the future of the rail supply industry.

              Q146 Austin Mitchell: You say that you have your development role, which is taken into account in planning these things, but there were big development plans for Ebbsfleet and look what is happened—nothing.

              Philip Rutnam: Not much has happened there. I can tell you that there is a factory going up in Newton Aycliffe because one of my officials was there to mark the event just the other week.

              Can I come on to the question about a business rate supplement? The Government’s policy for the funding of HS2 is that it should be funded from general taxation. In their spending plans—the spending review 2013—the Government set out funding for the project and are proposing to fund it as part of the Department for Transport’s budget, which goes back to some of our earlier exchanges. I am not aware of any proposal to fund the project through a business rate supplement.

              By the way, going back again to some of the earlier exchanges, it is worth bearing in mind that HS2 is a project with widespread benefits. Yes, it has benefits for the big cities of Birmingham, Manchester and Leeds, as well as for other cities in the north, but it also has benefits for commuters from Milton Keynes.

              Q147 Chair: You don’t have to go into a justification of HS2.

              Philip Rutnam: It is relevant to the point because the benefits are widespread.

              Q148 Chair: I want to get you back to what I think is a really important issue that Austin raised about who sponsors this. “The Government have decided” is always a way of getting you out of arguing the case. When we looked at Crossrail, I remember the arguments at the time about whether or not it was affordable, and there was discussion about whether businesses should pay. I accept that Crossrail is a slightly different kettle of fish, but nevertheless, would business benefit, would commuters benefit, would mums and kids benefit or would old-age pensioners benefit? Who would benefit?

              In the end, there is a little supplement on the business rate over a long period of time, although I cannot remember the amount. This should be your advice to Government: it seems to me that if the great argument about HS2 is that it will build economic regeneration in these northern cities, there is a very strong argument that there ought to be a private sector contribution spread over the length of the project to 2030 or whenever, as well as the taxpayer paying. It rather disturbs me that you sit there as the accounting officer, Mr Rutnam, and say that the Government decided. The Government decide on your advice, and I cannot see why, in today’s constrained circumstances, you have not advised them to look at private sector contribution.

              Philip Rutnam: To go back to the point that I was trying to make, the benefits of HS2 are actually very widely spread.

              Q149 Chair: But so are the benefits of Crossrail.

              Philip Rutnam: No, the benefits of Crossrail are much more concentrated, as you would expect, in the Greater London area.

              Q150 Chair: No they are not; they are for people living in London as well as businesses working in London. They are for both, but businesses are providing a contribution. This argument over HS2 is so much tied up with economic factors. It may benefit others—we don’t doubt that—but it is so tied up with the economic growth argument in the northern cities. It is a really good case. Rather than £50 billion on this without any business contribution; there should be some.

              Philip Rutnam: The projects are very different. Crossrail is a 10% increase.

              Q151 Chair: Did you give advice on this issue?

              Philip Rutnam: We have given advice on the way in which HS2 could be financed, of course. Yes. The Government’s view—and it is a matter of policy—is what I have set out. I am not aware of any proposal from the Government to finance it other than through the Department for Transport’s budget. I accept that at the margins there are opportunities for including genuinely private finance, not another sort of taxation, for some elements of the project around stations. We could talk about those.

              I come back to the important point that this is a project that is not just of benefit to the northern cities. It is actually of very widespread benefits because one needs to regard the national rail network as a network. Our investment in HS2 will have widespread benefits—maybe less immediately felt—across the rail network north of London. That will even include benefits in Cambridge and Peterborough and the east of England.

              Austin Mitchell: I have one final question. I don’t want to pay for it, so don’t try these London tactics on me.

              Chair: It is the taxpayer. I am thinking that businesses ought to pick up part of the tab.

              Q152 Austin Mitchell: A final question. This country is less suited to high-speed trains than bigger countries such as France or China. We have a population that is scattered between the big cities. Although this will serve the big cities there is the problem of what the Americans call the fly-over states. In the case of high-speed trains, it would be speed-over areas. What development prospects does it hold out, what does it do for the great intermediate areas where lots of people live between the big cities? What does it do for them except wreck them?

              Philip Rutnam: It absolutely does not wreck them. I am going to ask David to comment on the benefits to places other than the big cities.

              David Prout: It is clearly difficult to make a case that the people in the Chilterns and Buckinghamshire are going to benefit from HS2. What we have done is design the line in the most careful possible way to avoid damaging communities. For the whole 100 miles between the Northolt tunnel and the junction where we go into Birmingham the railway will demolish only 100 houses. We have carefully designed it to have as little impact as possible on the communities through which we go.

              As far as the wider benefits are concerned, one thing we have been looking at with David Higgins is how to ensure—and this was a point that Lord Deighton and his taskforce made—that HS2 is properly integrated with the existing rail network. That is why, in his report, David suggested that there should be a hub station at Crewe. He endorsed the idea of a hub station in the east midlands.

              Q153 Austin Mitchell: The more it stops, the slower it goes.

              David Prout: He proposed it should be relocated in order to make it integrated better with the line between Nottingham and Derby. That is why he said that given the evidence that was available to him he favoured Meadowhall near Sheffield over Sheffield city centre. That is why we are looking again at the design of the station in the centre of Leeds, in order to enhance connectivity, so that more people can get easily to our new high-speed stations and benefit from the line as a whole.

              Q154 Mr Bacon: You are not doing that at Birmingham, are you?

              David Prout: At Birmingham, it is just not possible to get into New Street. New Street is completely and utterly full and we have put the station as close to the centre of Birmingham as we can, right next to Moor Street station. So, it is not always possible but we are looking at it as much as we can with the other stations.

              In addition to that—and Mrs Hodge has told us to shut up about this—there are the commuting benefits. The release capacity will benefit up to 100 towns and cities up and down the country. That was set out in a report published by Network Rail at the same time as we did the strategic case.

              Q155 Nick Smith: Will there be private sector or business financial support for HS3?

              Philip Rutnam: To be honest, it is too early to say. I go back to my first answer to the first question about HS3. We now need to do a much more detailed piece of work about the options and all their different dimensions, including financing and funding options. It is simply too early to say.

              Q156 Chair: Are you going to do that before the Chancellor gets up on his feet for the pre-Budget report?

              Philip Rutnam: No, we have not done that yet, but we have now been remitted by the Chancellor and Prime Minister to produce a detailed report in March, in which we will go through as forensically as we can those questions. What was done before the Chancellor made any announcement was the report by David Higgins, which essentially looks at the strategic case for enhancing east-west connectivity and is positive about the case for further investment.

              Q157 Chair: May I move us on to two other issues? One goes back to an issue that we have covered before, but looking at us in relation to international competitor countries, University college London did an interesting bit of research on comparative costs. I don’t know whether you have seen the data. I know it is about the UK channel tunnel rail link, which they inevitably look back at, but hopefully in looking back we can look forward. The cost per kilometre was higher than the others at $0.085 billion. It was 48 months behind schedule. It was 57% over budget. In France, the Valence-Marseille line was 12 months behind schedule, 3% under budget and $0.02 billion per kilometre. In Germany, the Köln-Rhein to Main line was 12 to 36 months behind schedule, 4% over budget and $0.04 billion per kilometre. The Shinkansen line in Japan was on budget, 33 months behind schedule and $0.06 billion per kilometre.

              The table is quite interesting. First of all, we are performing worse, so what are we learning from that in how you plan ahead? The other interesting thing is that the French, German and Japanese projects were entirely publicly sponsored and delivered, whereas the UK channel tunnel rail link was 29% public and 71% private. To do another comparison, the Netherlands, which also looks a bit bad, also had a mixture of public and private. Some questions arise. First, why are we worse, what have you learned and what are you doing differently? Secondly, what have you learned from the fact that the ones that delivered on time were mainly publicly delivered as well as publicly sponsored?

              Philip Rutnam: I will comment on the second point and then perhaps ask David to comment on the first.

              We take the point about private finance versus public funding. Going back to an earlier exchange, the Government have taken the view that the most efficient way of getting HS2 built to the quality that we need to deliver the benefits that we need will be through taxpayer funding and through a really effective exercise between us and HS2 Ltd of the Government client and sponsor functions. So it is public funding rather than private funding. Private funding did not, in the end, create benefits for HS1. It created net costs, and a lot of effort then had to go into managing out—

              Q158 Chair: This is different from commercial funding.

              Philip Rutnam: Yes. You need all the disciplines of an extremely effective commercial approach—I look to David Higgins and Simon Kirby above all to put that into effect—using public funding for the great bulk.

              Q159 Chair: Are we going to do that on all major rail projects now?

              Philip Rutnam: It is how we approach Network Rail’s enhancement programme. I would draw a distinction with some other projects where there is more scope for private financing, so I wouldn’t rule out the use of private financing, but in the particular circumstances of HS2, the Government have taken the view, partly informed by the experience on HS1, that the best way of procuring this effectively at lowest cost is to expect to fund it through public finance.

              Your first question was about costs and what we have learned from comparisons with France, Germany and Japan.

              Q160 Chair: Yes. We are more expensive; our overrun is longer; and our completion dates are worse.

              David Prout: We are, understandably, intensely interested in comparisons between the way we build railways and the way they have been built elsewhere. The Chancellor has formally commissioned a report from David Higgins or HS2 Ltd on international comparisons. There are some differences in the way we build these things. It sounds obvious, but on the route of the new railway that is being built in France at the moment, they lay tarmac and run the lorries down the tarmac of the railway to build the next bit of the railway. We didn’t do that with HS1. In France, the gantries for holding the electric wires are set into the foundations as the foundations are built. In England, we build the foundations and then we come along and bolt gantries to the foundations. As far as viaducts are concerned, new systems are being used abroad whereby the next bit of the viaduct is launched from the bit that has already been built. That means it is cheaper and quicker to build it. So we are looking at this stuff. We believe that we may be able to make considerable savings from adopting these different techniques, but we are also alive to the fact that the circumstances in Britain and elsewhere are just different, in terms of the nature of the countryside we are building through, sensitivity, hours of operation and so on.

              Q161 Chair: As a vote is coming, I am going to cover the other issue and come back to that one if I can, because I don’t think people will want to stay beyond the vote. The issue is sponsorship. You have talked a lot about this, and I think we would welcome the fact that you should be the sponsor, not the deliverer, but what is the reality? Mr Prout, where do you sit; do you sit in the Department for Transport?

              David Prout: Yes.

              Q162 Chair: Quite. So in terms of HS2, it may be different notepaper, but it is all, in effect, part of the Department for Transport. How are you really going to ensure that difference between sponsorship and delivery? I don’t think you have got it on HS2. And I have a further question on that. Network Rail is now coming into the public sector, so you are going to have to again—we are about to have a vote—do it there. Go on—quick.

              Philip Rutnam: Shall I try dealing with both of those really quickly? Actually, I think we have got the arrangements right on HS2. David sits in the Department. He reports to me. He is the senior responsible owner, so far as the Government are concerned, for our interest in HS2; he is DG in the Department. HS2 Ltd sits in another building. HS2 Ltd is the delivery vehicle. It is the equivalent of Crossrail Ltd, which you visited when doing the report on Crossrail. David’s job, with me and the support of a number of others, is to hold HS2 Ltd to account for the money we give them and the things we are asking them to do. They are the delivery vehicle; he is the sponsor.

              Q163 Chair: But HS2 is wholly owned by Government. I just think it is a notepaper thing, rather than a real thing.

              Philip Rutnam: No, it is much—

              Q164 Mr Bacon: The Olympic Delivery Authority was wholly owned by Government, wasn’t it?

              Philip Rutnam: I believe so, yes.

              Q165 Mr Bacon: That is the relationship you are talking about.

              Philip Rutnam: Yes, and Crossrail Ltd is wholly owned legally by Transport for London, but they have the same separation. I agree it poses a challenge when you own the thing 100%, so what you have to bring to the relationship is the discipline and the challenge—as well as the support—needed from a properly commercial relationship. We are not there yet, but I tell you: by the time we get into the procurement phase for this project, let alone the construction phase, we will be. It is critical to their success and our success. That is HS2 Ltd. On Network Rail, what is the—

              Q166 Chair: It is just that now it is coming under the public sector. You become the accounting officer—

              Philip Rutnam: Principal accounting officer.

              Q167 Chair: Whatever you become. So that, again, changes the nature of the relationship. The question is how you will maintain that purchaser-provider split or sponsor-deliverer split, however you want to—

              Philip Rutnam: That is a very important question, and we have done a lot on that. Clare, do you want to—

              Clare Moriarty: We have exactly the same relationship, in terms of the Department. Part of the Rail Executive is the sponsor for Network Rail’s enhancements programme. We now have a customer relationship with Network Rail, in relation to both their operation of the existing network and the enhancements, and we have a shareholder relationship. We ensure that those two are separate.

              We have the sponsor function. It is a slightly different arrangement because the Office of Rail Regulation has specific responsibilities in terms of holding Network Rail to account. And we are in the process of developing the governance arrangements, which I think will include strengthening our sponsorship function to ensure that we and ORR together are in the best possible position to hold it to account.

              Q168 Chair: Are you considering a total privatisation of Network Rail?

              Philip Rutnam: That is not the Government’s policy. That is obviously a policy question and the Government’s policy has been to recognise the classification change made by ONS following ESA 2010 and to put in place a set of governance arrangements—in fact we published the framework agreement for the governance on the very day that classification change came into effect—necessary to recognise how we manage our relationship with this entity properly in the public sector.

              Chair: I am there. Thank you very much. We have not got a vote.

              Mr Bacon: In the words of British Rail, “We’re getting there.”

              Oral evidence: Lessons learned from major rail infrastructure programmes, HC 709                            19