The construction of the Birmingham to Crewe leg of HS2 will be delayed by two years and services of the high speed rail line may not now enter central London until the 2040s.
Transport Secretary Mark Harper announced a series of setbacks also affecting key road projects under cost-saving measures that threaten to deliver a blow to “levelling up” plans.
The high-speed line was due for extension between Birmingham and Crewe between 2030 and 2034 to help boost transport in the north of England.
But Mr Harper said he was instead “prioritising” the initial services between Old Oak Common in west London’s suburbs and Birmingham Curzon Street.
The move means that services will not stop in Euston in central London for years to come, with passengers expected instead travel for half an hour on the Elizabeth Line.
In a written ministerial statement, Mr Harper insisted that the Government is “committed” to delivering the high-speed rail link between Birmingham and Crewe.
But he added: “We have seen significant inflationary pressure and increased project costs, and so we will rephase construction by two years, with an aim to deliver high-speed services to Crewe and the North West as soon as possible after accounting for the delay in construction.”
Business leaders warned the move could ultimately lead to higher costs.
John Foster, the Confederation of British Industry’s policy unit programme director, said: “Delays to projects may create short-term savings, but they can ultimately lead to higher overall costs and slow down the UK’s transition to a better, faster and greener transport network”.
Shadow transport secretary Louise Haigh said the North is “yet again being asked to pay the price for staggering Conservative failure”.
“Tens of thousands of jobs and billions in economic growth are dependent on this project,” the Labour MP said.
Mr Harper insisted the Government was “committed” to delivering services into Euston, but said ministers will “take the time to ensure we have an affordable and deliverable station design”.
He said trains to Euston would be delivered alongside HS2 to Manchester, which had been set to be connected with Crewe between 2035 and 2041.
Officials confirmed that Euston’s connection had been anticipated to open between 2031-36, but now is expected to be a roughly three-year delay.
The Tory West Midlands mayor Andy Street said the latest rephasing of HS2 is a “great disappointment” and called for the delays to be kept to a minimum.
Labour’s London mayor Sadiq Khan said having trains going to Old Oak Common for a longer period was not a viable option.
“Hundreds of millions of pounds have been spent regenerating the Euston area, and homes and businesses have been demolished to make way for HS2, causing huge disruption for zero reward,” he said.
Mr Khan said the project “must go ahead without further delay”.
Commons Speaker Sir Lindsay Hoyle was angered by the Government making the announcement with a written statement rather than facing MPs for questioning.
A spokeswoman said: “The Speaker has consistently told the Government that major policy announcements should be made to the House first so that members have the chance to ask questions on behalf of their constituents, rather than hearing about them via the media.”
The transport setbacks come ahead of Chancellor Jeremy Hunt’s Budget on Wednesday when he is expected to keep a tight rein on Government spending.
Mr Harper insisted: “These are the difficult but responsible decisions we are taking, that put the priorities of the British people first, in controlling inflation and reducing government debt.”
The A27 Arundel and the A5036 Princess Way in Liverpool were being put back along with other road projects.
The Lower Thames Crossing connecting Kent and Essex was being delayed by two years.
AA president Edmund King said: “All modes of transport are vital to the economy, environment and society in the UK, so cuts across the board will have a detrimental effect.”
Andy Bagnall, chief executive for rail industry lobby group Rail Partners, said: “While inflationary pressures make infrastructure projects more challenging, it is critical for Britain’s economy and meeting net zero targets that large sections of HS2 are not delayed which will ultimately increase the overall cost.”
Henri Murison, the chief executive of the Northern Powerhouse Partnership business group, said: “While this decision to delay is a disappointing one for the country, we are relived that the most northerly section of the route between Crewe and Manchester will be protected as the section makes it way towards parliamentary approval.
“Delaying projects – whether it’s train lines or hospitals – doesn’t make them cheaper, it only holds back economic benefits and increases the overall scheme costs further in the long run.
“We’re paying a huge price for the endless dithering during Boris Johnson’s premiership, and the wider damage done by cancelling the leg to Leeds, with still no plan for how to get services to Yorkshire and beyond.”
HS2 has been dogged by criticism over its finances. A budget of £55.7 billion for the whole of the project was set in 2015.
But the target cost excluding the eastern leg of Phase 2b from the West Midlands to the East Midlands has ballooned to between £53 billion and £71 billion (in 2019 prices).
Penny Gaines, chairwoman of the campaign group Stop HS2, said: “With the so called re-phasing of the Birmingham to Crewe section, the delays and downgrading of other parts of the project, the Government is spending tens of billions to have a railway with two Birmingham stations and one in the suburbs of London.
“Rather than adding more delays to supposedly save costs, the Government should cancel HS2 in its entirety, ensure that the people who have lost homes and businesses to HS2 are paid in full the compensation they are due, and the damage to the environment that has already been done is made good.”