A gathering storm

Funding cutbacks likely in the next Control Period

“There is a gathering cloud over high-level assumptions that passenger and freight growth will continue.”

The money that is available to operate, maintain and renew the national network is disclosed in the Government-published Statement of Funds Available ( SoFA), accompanied by a High Level Output Specification ( HLOS) that specifies investment in larger projects.

At the same time, industry regulator the Office of Rail and Road (ORR) is tasked with undertaking a Periodic Review to establish how much money Network Rail needs to deliver both the enhancements projects and the efficient management of the infrastructure.

The result of this negotiation will define what is delivered in terms of physical projects and performance benchmarks during the 2019-24 Control Period.

NR has failed to deliver the promise on much of the content for the current Control Period (2014-19), but history will show that little blame for this lies at the door of the infrastructure owner.

Regrettably, through a combination of looking through rose-tinted glasses and a lack of practical expertise, the ORR forced NR to accept a figure for the operation, maintenance and renewal of the network that was £ 2 billion less than the funding requested. The productivity requirement was completely unrealistic, and based on desktop research of unit costs of other rail networks which bear no comparison to the intensity of operations in Britain.

The consequences of that flawed decision are being keenly felt. The Government has had to make a number of interventions to provide funding for projects originally included in the regulatory settlement - such as the Digital Railway initiative, the funding of the East West Railway that ultimately will re- connect Oxford with Cambridge, and asset maintenance on the Southern network.

The electrification programme is another Achilles heel for NR. At first sight, this is a damning story of incompetence, but there is much more behind the delay and cost overrun than is generally known.

As the programme began, a new European Technical Standard for Interoperability came into force that altered the clearances for overhead wiring that had applied to previous electrification schemes in Britain. It appears that the change was waived through without challenge by the RSSB (Rail Safety and Standards Board), which did not engage with NR on the practical implications of changes to infrastructure components such as stations and bridges.

Once the implications and cost effects were realised it was too late to seek a derogation that would almost certainly have been agreed, given the different loading gauge characteristics compared with continental standards. The end result is that the advent of the bi-mode train will spell the end of significant electrification projects in the next Control Period.

It will change the language from deferred schemes ( such as the Midland Main Line beyond Kettering) to abandonment for the foreseeable future (the case for extending wiring beyond Cardiff to Swansea). Hopefully the section between Chippenham and Bristol Temple Meads will be completed before 2024, as the faster all-electric timings will provide a business case for reinstating the work.

In the current Control Period, there was a commitment to invest £ 12 billion in capacity enhancement schemes, to reflect an expectation that passenger growth would average 2.5% in the five-year period to 2019. All of this finance was scheduled to be borrowed by NR, as it was in excess of income raised from track access charges which cover the day-to-day cost of providing the network.

However, the assumptions that NR would continue to organise funding from private sources to meet these costs changed when the company was judged to be part of the public sector in September 2014. The financial expectation had been that borrowing would reach £ 50bn by 2019, and it currently stands at £42bn.

It is inconceivable, faced with all the other competing requirements for state funding, that the debt will be allowed to continue to increase by some £ 3bn per annum in the years to 2024. Hence, despite the calm Government exterior, there is a desperate search for methods to fund continuing capacity enhancement.

East West Railway is a first attempt to do things differently, and it can be expected that new franchise competitions will give weight to significant investment proposals from bidders in infrastructure funding. This accounts for Government enthusiasm to adopt new potential operators from Japan and China in the franchising process.

It would be more beneficial to attract investment funding from franchised operators than levy large premium payments. There is also the alternative of increasing track access charges, so that projects are funded by NR from the charges paid by train operating companies.

There is a gathering cloud over highlevel assumptions that passenger and freight growth will continue. The most recent quarterly statistics have indicated that passenger numbers are in decline in London and the South East, which is the largest market for rail operations. Freight volume is also down - a reflection of the switch to low-carbon sources of electricity generation that has largely eliminated the movement of coal from the network.

It is possible that the tenets of the 1993 Railways Act have run their course, and that the duty of the Secretary of State for Transport and Regulator to promote the use of the railway network for the carriage of passengers and goods (and the development of that network to the extent considered economically practical) will fall victim to the financial constraints of our time.

There is some anecdotal evidence that the network is ‘running too hot’ - a military metaphor where it is judged that the use of assets and human resources have reached a sustainable limit. I make many rail journeys, and what is evident is that the systems that support the day-to- day operations have become inadequate.

British Rail accepted that a demand for 800 million annual journeys was the peak it could handle well with the money available. Perhaps that should be recalibrated to reflect the 1,800 million annual journeys after two decades of private sector operations, and a pause to make sure the product works for those who travel.

If enhancement funds are cut that will be the reality, with volume controlled by fewer low-priced journey offers.