Watchdog blames UK government for high-speed rail cost overruns

LONDON (Reuters) - Britain's flagship new rail project HS2 is billions of pounds over-budget and years behind schedule because the government underestimated its complexity, and significant risks to it remain, a public spending watchdog said on Friday.

The criticism comes ahead of the publication of a review into whether HS2 should go ahead at all, due to its spiralling cost and amid questions about whether the money would be better spent on boosting existing services.

The National Audit Office (NAO) criticised the Department for Transport (DfT), the government-funded company behind the project, HS2 Ltd, and the wider government.

Envisaged as the new backbone of Britain's national transport network, the 345 miles of new track are designed to slash journey times and add capacity, allowing the UK to catch up with much of Europe which already has high-speed rail links.

The NAO criticised how the DfT and HS2 have to date handled the proposed route between London and northern England, saying opening dates were over-ambitious and that the latest cost estimates were up to 58% above available funding.

"By not fully and openly recognising the programme's risks from the outset, DfT and HS2 Ltd have not adequately managed risks to taxpayer money," it added.

On cost, the NAO said the latest DfT estimates of between 65 billion pounds and 88 billion pounds "are uncertain and could change."

The bill could actually be as high as 106 billion pounds, according to the Financial Times which cited an HS2 review led by former HS2 Chairman Doug Oakervee that has not yet been published.

While the watchdog said it believed that Phase One of the project, which will connect London to central England, was now on a stronger footing, it still faced considerable challenges.

Phase Two, which would link central England with the north, is at an earlier stage and is already also over-budget, it said.

"To ensure public trust, the Department and HS2 Ltd must be transparent and provide realistic assessments of costs and completion dates as the programme develops, recognising the many risks to the successful delivery of the railway that remain," the NAO said.

The DfT said it has worked closely with the NAO and is already acting on many of its recommendations.

"We recognise that there have been significant underestimations of both the cost and schedule of HS2 in the past which is why we commissioned the Oakervee review to provide advice on whether and how to proceed with HS2," a spokeswoman said.

HS2 said that while there had been challenges in the past, changes had been made over the last three years.

"If the government decides to proceed, HS2 Ltd has a highly skilled team in place ready to build Britain’s new state-of-the-art, low-carbon railway," a spokesman said.

(Reporting by Sarah Young; editing by Stephen Addison)