The industry has been braced for bad news on the UK’s biggest infrastructure project following months of speculation over cost increases.
Sunak attempted to soften the blow to contractors by vowing to spend “every single penny” of the anticipated £36bn saved canning HS2 on smaller transport improvements across the country focused on the north and midlands.
He said: “The right thing to do when the facts change is to have the courage to change direction.
“I am ending this long running saga and cancelling the rest of the HS2 project
“What we really need is better transport connections in the north. This will be our priority.”
The Birmingham to London leg will run all the way into London at Euston as planned rather than stop at Old Oak Common.
But the current HS2 management team will no longer run the Euston site.
Sunak said: “There must be some accountability for the mistakes made, for the mismanagement of this project.
“We will instead create a new Euston development zone.”
Ditching the northern phase could save up to £36bn from a total budget that has ballooned to around £100bn.
But the knock-on effects will be massive impacting commercial development around HS2’s planned Manchester Piccadilly and Crewe stations.
The government has already spent £2.3bn buying up land and property on stage two of the railway from Birmingham to Manchester.
It is still unclear what level of compensation Balfour Beatty and Kier will receive for the termination of early enabling works contracts on the Birmingham to Crewe phase 2a stretch.
Director of operations for the Civil Engineering Contractors Association, Marie-Claude Hemming said: “This is a dark day for the UK economy, and for everyone who has placed trust in successive UK governments to level up the country and close the north-south divide.
“While the Prime Minister has promised to reinvest HS2 money in alternative schemes, we as an industry know how unlikely this will be to materialise and impact communities in anything like the game-changing way that high speed rail would have delivered.
“Britain now lags far behind our competitors and will remain so due to this short-sighted decision.
“That the UK Government can make such a decision without a democratic mandate – after the scheme has been supported by all parties throughout successive General Elections – frankly beggars belief.”