What might the post-election Government have in store for rail?
Rail policy changes.
There are no certainties about election results, but I imagine there are few who do not think that a Government led by Theresa May will be returned to Westminster on June 8. This may be viewed as likely to result in a continuation of the current railway structure, but there are straws in the wind that may bring change to future policy in passenger and freight markets and infrastructure provision.
If there is no substantial change the industry structure will have continued, by the end of the next Parliament, for more than 25 years - as a comparison, this exceeds the life of the ‘Big Four’ private railway companies prior to nationalisation.
The period has been a resounding success for rail in terms of creating products that both passengers and freight forwarders want to use in ever increasing numbers. But despite this, many commentators continue to yearn for greater operational integration (although this style of railway organisation resulted in past decline, as it was focused on production rather than market expertise).
This sentiment has resulted in various formats being tried that retain customerfacing benefits while integrating service delivery. The latest is the Western Route Supervisory Board, established to ‘improve the passenger experience’.
In truth, such measures are necessarily shallow as they cannot replace the statutory duties of the parties - on the one hand to shareholders and on the other to the Department for Transport, both of which represent an immovable object in the way of radical management change.
A different way of doing things has been promoted for the proposed East West Rail linking Oxford and Cambridge, for which the Bicester-Bedford section is expected to be operational by 2025. The line will be built and operated independently of Network Rail, but will be part of the national network available for use by passenger and freight operators.
It will be an integrated company operating its own train services, which will include links to Milton Keynes. There is a precedent with the management of Heathrow Express, which owns the airport rail infrastructure and stations and has track access rights to reach Paddington.
Amid all-round protest the Civil Aviation Authority, which regulates the airport, ruled that the historic cost of providing rail infrastructure was part of the regulatory asset base, and as such was recovered in the level of landing charges that airlines pay for using Heathrow. The current position is that the cost of track access remains subject to consultation, with the Investment Recovery Charge now set at £464 per train with further fixed and variable costs based on the type of vehicles used.
Such pitfalls can also emerge with different structures, but that is not to say they shouldn’t be attempted. Government departments have generally used a figure of 4.93% as an appropriate rate of return for privately funded asset creation, which would be applied to the building of a privately owned rail route and the cost of track access.
The recent award of the South West franchise on the basis of quality, rather than a financial promise in terms of future premiums, is a significant break from past practice. The DfT is also reported to have come round to the view that competition from open access operators drives a better journey experience which maximises revenue, although the trade- off with the reduced value of monopolistic franchises has yet to be resolved.
The current Government is under huge pressure to publish proposals for a reduction in vehicle pollutants. Some tough decisions are coming that will have an impact on car users, and for that reason there is an attempt to put off what is intended until after the election. It is widely predicted that there will be some form of congestion charging in polluted areas, which will be unpopular if there is no suitable alternative public transport.
The bigger impact for rail could be curbs in the use of road haulage, which is estimated to be responsible for 35 million tonnes of annual carbon emissions. The UK Government has agreed to a UN climate change protocol that requires current annual emissions of 500 million tonnes to be cut to 120 million tonnes by 2050.
After the election, policies that bolster rail freight activity will be needed - these should start with restoration of the budget for Mode Shift Revenue Support grants, which has threatened a number of domestic intermodal services. An alternative is an emissions levy on road transport, similar to that used in the power industry that has all but eliminated the use of coal for electricity generation.
The next legislative step following the Article 50 notice under the Lisbon Treaty to leave the European Union will be the Great Repeal Bill. This is intended to return all items of EU law and directives to the jurisdiction of the UK Parliament, which can then decide the elements that will remain on the statute book and those to be repealed.
For rail, the legal directives are covered by three railway packages dating back to 1991 that cover the separation of accounting between infrastructure provision and train operations, and open access to networks for international operations. Market liberalisation has been accompanied by the implementation of Technical Standards for Interoperability, overseen by the European Rail Agency and which apply to national networks operating domestic services.
Infrastructure technical standards have been in force since 2015, which include traction power supply systems. It has disrupted the electrification programme in Britain by requiring greater clearances for overhead wiring under bridges and adjacent to platforms (one of the reasons for the delay to projects and higher costs). In the future, such safety regulation can return to UK control.
In the past decade, the rail industry has steadily reduced - and now eliminated - the need for revenue support as franchise premium income exceeds subsidy requirements for regional services.
For infrastructure projects the Government ’s High Level Output Specification (HLOS) is due to be published together with the Statement of Funds Available (SoFA). At this stage, what will be included is unknown and will depend on the financial priorities of the new Government.