Road upgrades could go billions over budget

A new NAO report has identified inflation and delays as the reasons behind National Highways' likely inability to adhere to the budgets set for dozens of road upgrade projects.  

National Highways, which manages motorways and major roads in England, was given a total of £14.1bn by the Department for Transport (DfT) for 69 enhancement schemes in the second road investment strategy (RIS2). According to NAO, the government-owned company has completed less work and at a higher cost than anticipated. 

The report warned it will cost an estimated £3.3bn more than planned to complete the projects due to take place between April 2020 and March 2025.

It also stated that projects due to be in construction during the subsequent five years are likely to cost £6bn above previous expectations, although that includes some of the schemes included in the £3.3bn figure.

Currently, around 33 schemes are behind schedule by between one month and more than three years, with an average delay of 12 months. The NAO also found that National Highways has already allocated all of its £1.16bn RIS2 contingency budget.

“The extent of inflationary cost pressure is beyond the levels that can be absorbed by National Highways and it may have to delay work, de-scope projects or cancel projects to remain within its overall budget,” the report states.

“Similarly, DfT is experiencing cost pressures from inflation across its programme of transport infrastructure work across rail and road. DfT cannot absorb the level of inflation risk within its budgets and deliver its work as planned."

Projects in RIS2 include building a dual carriageway and tunnel near Stonehenge, Wiltshire, and the tunnelled Lower Thames Crossing between Kent and Essex, neither of which have received development consent.

Last year, the budget for enhancements was cut by £3.4bn and the number of projects was reduced to 58 when it became clear National Highways could not implement the delivery plan as intended.

Gareth Davies, head of the NAO, said it was “unfortunate” that the road investment plan developed by the DfT and National Highways coincided with the coronavirus pandemic and rising inflation, but “more could have been done to manage risks”.

“Delays to projects have meant that less work has been delivered than planned and at a higher cost," he added. 

“DfT and National Highways must now fully address the rising cost of its revised portfolio of projects, undertaking a review of all road plans that it plans to move into the time period of its third road strategy (2025-2030).

“This review must consider if these projects remain feasible and provide optimal value for money.”

The funding crisis and project delays are also expected to have a substantial knock-on effect to the projected plan for RIS3 (2025-2030), as already committed elements of this programme have soared to £11.5bn from the £5.5bn estimate in 2020.

The NAO has also warned extra funding would need to be found if the paused smart motorway programme is restarted, because £635m of the previously allocated £745m upgrade funding has been diverted into retrofitting extra emergency areas, installing concrete barriers, CCTV and other safety measures.

National Highways chief executive Nick Harris said, “external factors” have had a “significant impact on our ability to deliver this complex programme”.

“Despite these challenges, we have successfully received consent to deliver several major infrastructure developments," he said. “We’re confident that we manage portfolio and project risks well, while recognising that there is always room for improvement as we mature our processes ready for RIS3.”

A DfT spokesman said RIS2 is “transforming our road network” and a “minority of projects” are being delivered later than originally proposed.

He added: “We have allocated £24 billion to ensure we have a road network that is safe, reliable, environmentally conscious and good value for the taxpayer.”

RAC head of roads policy Nicholas Lyes said drivers will be “very frustrated if vital improvement works are put on hold”.

“Any attempts to take an axe to the roads budget is short-sighted because slow-moving traffic and delays do nothing to help the economy grow,” he said. 

To address this situation, NAO has recommended that DfT and National Highways should, working alongside HM Treasury, develop a response to the current inflationary pressures and adapt current projects accordingly. 

In the longer-term, NAO said National Highways needs to make further improvements to its management of risks that could have an impact upon the delivery of the third Road Investment Strategy.