An investigation into the HS2 project by the National Audit Office said the £30bn cost envelope for phase one is now more bolted down, but raised concern that costs for phase two were more uncertain.

Since April 2017, the forecast cost of phase one main civils has jumped 85% to £10.7bn.

Auditors have warned that any delays beyond March will dramatically increase costs on the project’s second phase.

If work does not begin by this date, the schedule may be delayed or compressed further because some of the construction work can only be done at certain times of the year.

Delays would also compress later parts of the programme, such as integrating the signalling and control systems, which are complex and risky parts of delivering the project on time and budget.

Auditors revealed that shifting the risks on targeted construction costs has saved £1bn through contractors reducing prices in response to the reduced risks.

The report says that HS2 revisions to its commercial approach were sensible but carried risks that it must manage.

Under new arrangements, contractors will no longer be liable for cost increases above a fixed target price.

Instead, HS2 has developed an estimated cost for the works with its contractors that will leave HS2  responsible for funding increases above the estimated cost, while contractors would lose a proportion of their fee for building the railway if they fail to meet cost and schedule milestones.

The NAO said that HS2 must now develop its capability to manage the programme to avoid further cost rises.

The report said: “We welcome the increased realism on the estimated cost and schedule for the programme. However, significant risks remain.

“While the estimated cost and schedule for Phase One are now on a stronger footing, the challenge of getting Phase One into construction, and of monitoring and managing the programme as it progresses, is considerable.”

Phase Two is at a far earlier stage of development with many important decisions to be made before HS2 Ltd and the Department can improve cost and schedule estimates.

HS2 has purchased 66% of the land required to build Phase One and has spent £7.4bn in preparations to start.

The full project cost now sits between £65bn and £88bn (2015 prices), between 17% and 58% more than the available funding of £56bn agreed.

Welcoming the report, HS2 said: “As the NAO recognises, our work – along with a greater understanding of the ground conditions and build requirements – means Ministers have robust cost estimates for Phase One of the HS2 project.”

The High Speed Rail Group made up of contractors and suppliers, said:  “If the Government want to fulfil their promise of an infrastructure revolution, HS2 must be completed in full, without further dither and delay.

“The alternatives spoken of are many years behind HS2 in terms of readiness to begin work and some, like Northern Powerhouse Rail, require HS2 to be delivered to realise their full benefits.”

Robert Nisbet, director of nations and regions at the Rail Delivery Group, which represents train operators and Network Rail said: “It’s time to inject some realism into the debate about HS2.

“There are no shovel ready alternatives. To cancel it would be to worsen punctuality and overcrowding on the railway for years to come, throttling future economic growth and damaging the environment by encouraging car travel.”