Public accounts committee MPs believe poor cost estimates and serious delays to plans to widen two stretches of Britain’s busiest motorway may have potentially cost taxpayers an extra £1bn.

Errors in calculations on cost estimates ruled out hard shoulder running as an option at an early stage while financing costs soared by £600m during the nine years it took to sign a deal with contractors.

The agency said the project to widen 35km between junction 16 and junction 23 of the M25, in Buckinghamshire, Hertfordshire and Essex was progressing on time and under budget.

But the agency’s cost estimates for a 30-year, £3.4bn private finance contract for widening the M25 were “poor”, the committee said.

Committee chairman Margaret Hodge MP said: “The Highways Agency’s mishandling of the project to tackle congestion on the M25 could cost the taxpayer an extra £1bn.

“The agency should not have focused just on widening but also have given proper consideration to a much cheaper alternative, hard shoulder running.

“A private finance project intended to transfer risk to the private sector should not have restricted innovation by ruling out this alternative solution.

“The decision to stick with widening was also substantially influenced by a technical error in the agency’s cost estimates. Had the error not been made, HSR would have been shown to be the cheaper option.”

She added: “The costs of the widening project have also been driven up by the nine years it took to conduct the procurement process, from the first commissioning of consultants in 2000 to the signing of the private finance contract in May 2009.

“This delay exposed the project to the credit crisis, resulting in £660m of extra financing costs. And the advisers upon whom the agency spent an excessive £80 million would have benefited from the drawn-out procurement.”

Roads Minister Mike Penning said: “This Government is driven by the need to get value for money for taxpayers so I welcome this report. It is another example of Labour costing taxpayers dearly. I am determined to learn the lessons of the report and we will act on its recommendations.”

Highways Agency chief executive Graham Dalton said: “We note the conclusions reached by the Public Accounts Committee and will act on its recommendations.

“Meanwhile, widening of the M25 in Buckinghamshire, Hertfordshire and Essex is progressing to time and under budget and will be completed before the opening of the Olympic Games in summer 2012.”