The transport secretary Grant Shapps has told parliament that HS2 services between London and Birmingham will be delayed by up to five years to 2031. In a further blow to the project, he also said that final completion of the northern section of the network is likely to be delayed by seven years until 2040.

Shapps’s announcement to MPs is based on the findings of HS2 Ltd chair Allan Cook and comes before the outcome of a government review into the project which is due to report next month. Shapps also revealed that the budget for HS2 had ballooned from £56bn at 2015 prices to up to £88bn at today’s prices.

According to Cook, the single main reason for the escalating costs and delay were ground conditions along the route. He also said that a staggered opening between 2028 and 2031, with an alternative London terminus of Old Oak Common rather than Euston until 2030, was probably a more doable plan. 

The statement by Shapps is bound to cast further doubt over the project, especially given the government’s impending review. A “go or no go” decision by the end of 2019 has been promised once the government review submits its conclusions. That review is being led by former HS2 chair Douglas Oakervee and Lord Berkeley, a longstanding critic of the scheme.

Darren Caplan, chief executive of the Railway Industry Association, said: “It is important to remember that this project remains vital for the UK, its economy, cities and regional communities, and as shown by chairman Alan Cook’s stocktake, the benefits have been substantially undervalued. It will still more than pay for itself in GVA for the country and will support 30,000 jobs at peak construction.”

Mark Sitch, senior partner at planning consultancy Barton Willmore, said: “This delay is a massive blow and step backwards for the future-proofing of the country’s infrastructure. This delay will impact market confidence and inward investment in the Midlands and the north. Being a big-ticket infrastructure item, the fear now is that this will lead to HS2 never coming forward.”

The CBI’s director of infrastructure Tom Thackray commented: “Today’s announcement of the delay is disappointing. But the message from business on the project remains consistent – build it, back it, benefit from it. Of course, today’s report may be a clarion call for those anti-HS2 voices but businesses believe derailing the scheme would be a significant economic restraint on the Midlands and the north.”

Shapps said the government remained committed to investing in modern infrastructure to ensure the future prosperity of the country but they needed to “subject every project to the most rigorous scrutiny and, if we are to truly maximise every opportunity, this must always be done with an open mind and a clean sheet of paper.”