Transparency data

Northern Powerhouse Rail: accounting officer assessment summary (May 2024)

Updated 30 July 2024

This accounting officer assessment (AOA) was initially prepared before the 2024 General Election and relates to the scope of the Northern Powerhouse Rail (NPR), under previous government plans set out in October 2023.

The current government has not yet taken decisions on its future priorities for rail investment in the North.

Introduction

This accounting officer assessment (AOA) summary relates to the 2019 to 2024 government’s Northern Powerhouse Rail (NPR) programme, reflecting that administration’s decisions in October 2023 set out in Network North (CP 946) and the subsequent 25 March 2024 written ministerial statement. It was prepared for publication before the general election was called.

Background

It is normal practice for accounting officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they are consistent with managing public money (MPM).

An AOA had been prepared, but not finalised, to accompany a strategic outline business case (SOBC) for the initial scope of NPR as set out in the 2021 Integrated Rail Plan. The Network North Command Paper of 4 October 2023 adapted the NPR network to include Sheffield, Hull and Bradford and transferred the section of route between Millington and Manchester from High Speed 2 (HS2) Phase 2b into the NPR programme. The net effect was an increase in estimated costs to £30.6 billion for NPR.

The AOA was revised in light of these material changes to the NPR programme.

This assessment most immediately addressed the continuing spend of £54 million development spending anticipated to the end of 2024 to 2025. The next key decision point for this programme was expected to be on completion of a revised SOBC in summer of 2025.   

Regularity

Expenditure on the development of NPR between now and the completion of the SOBC in summer 2025 is estimated at £54 million for the financial year of 2024 to 2025. This expenditure is affordable within budgets agreed with His Majesty’s Treasury (HMT).

Legislative authority to incur this expenditure is considered to be provided by existing legislation.

Propriety

A decision to continue expenditure is consistent with the need to develop the scheme further including in relation to analysis of options, delivery model, construction methodology and cost estimates needed to inform the SOBC.

Value for money

The net increase in the estimated costs of NPR following decisions set out in Network North resulted in a reduction in the estimated benefit cost ratio (BCR) to 0.4 under standard assumptions, indicating that the costs of NPR outweigh the monetisable benefits provided.

However, this is based on indicative data with a low level of assurance. The BCR does not capture wider Level 3 benefits, such as dynamic land use changes and is sensitive to assumptions made, including about the length of appraisal period and future demand. For instance, the current BCR estimate assumes a significant reduction in the rate of future growth in rail passenger demand compared to the pre-pandemic decade levels. An improvement in demand would improve the BCR.

Given the life of the infrastructure, it would not be unreasonable to assume a 100-year appraisal period, rather than the 60-year period usually used. This would result also in a significant increase in benefits.

Equally, there are downside risks to the BCR, including possible future cost increases.

Value for money needs to take account of both the BCR and the strategic case. The strategic case for NPR is based on transforming connectivity between the major cities of the North, with the intent of:

• merging city labour markets
• boosting productivity by supporting both agglomeration and specialisation
• making the North a more attractive location for business
• addressing existing transport constraints
• improving transport accessibility
• improving environmental outcomes

Expenditure in 2024 to 2025 will be focused on the development of more detailed options, seeking to optimise benefits and reduce costs including through value engineering and developing a delivery and construction methodology aimed at ensuring efficient delivery.

Feasibility

While there will be significant challenges in delivering NPR, continuing to develop an SOBC for this programme does not raise feasibility concerns and is necessary to inform decisions.

Conclusion

Continuing with spend of £54 million ^{[footnote 1]} to develop an SOBC for NPR is consistent with the tests of MPM and justified in order to further develop the analysis of options, delivery model, construction methodology and cost estimates for NPR needed to inform the SOBC.

However, the low BCR indicates that the longer-term value for money of NPR is uncertain.

Continued work on the SOBC should, therefore, include a number of steps:

• work to understand all options including lower cost options needed to deliver the government’s strategic objectives for NPR, including options to strengthen effective management of scope and cost

• strengthened cross-government and regional co-ordination, including with leaders across the North, to ensure the strategic and transformational benefits of rail investment are realised through effective alignment with wider plans for growth, investment, housing, regeneration and local transport

• a clear plan for the timeline, sequencing of decisions, and delivery of different elements of NPR, including how investment should be prioritised across the programme to release early benefits and drive efficiency

• further work on appraisal methodology and sensitivity analysis to ensure that ranges are robust and comprehensive and wider transformational benefits are captured as fully as possible

• a clear plan to ensure the lessons of other projects notably HS2 are fully embedded in future delivery

• a clear plan for funding, risk and delivery profile

A further AOA will need to be carried out at SOBC.

1. Forecast relates to scheme development, and excludes potential land/property acquisition costs. In addition, a further £34 million anticipated spend on progressing the High Speed Rail (Crewe – Manchester) Bill, originally intended to enable HS2, is now assumed to form part of NPR costs. ↩