Insider

The funding dilemma.

“Despite what has been said, don’t let’s kid ourselves that bi-mode trains are a magic wand to provide like-for-like services.”

Tensions are emerging between devolved administrations and a Government intent on a final round of austerity to balance the books, at which it is doing quite well with a new forecast that the annual spending deficit is likely to reduce to some £40 billion in the current financial year.

At the same time, the heady mood that rail investment represented a good way to stimulate higher economic growth has taken a back seat, following the cost escalation of projects and the transfer of Network Rail financing to the Government. The result is a more critical view of rail industry spending compared with other demands on the budget.

There is a recognition that if money is to be spent on network enhancement, the private sector must be involved. At the end of last year NR commissioned a review by Professor Peter Hansford, who was advised by a panel of experts that included the chief executives of Keolis UK and Amey, directors from Carillion and accountant PricewaterhouseCoopers, and the managing director of GB Railfreight.

The recommendations confirmed that delegation of investment authority to NR Route Directors offered the best prospect for future project funding, with commercial expertise being made available to assess alternative design and delivery models. The core proposition is that there is nothing wrong with private companies funding projects from which they will receive benefit, although it was accepted that in the past working with NR was difficult and fragmented.

There is the example of a fully costed scheme to electrify the route between the East Coast Main Line and Hull, proposed by Hull Trains in 2013 and backed by a combination of private and stakeholder investment. Ultimately the project became too difficult to implement because of associated renewals that NR considered necessary, which raised costs beyond the payback possible from operational savings.

The review identified that to address such issues, a defined Service Level Agreement is needed that establishes the terms of business from the start and provides a single point of contact for the project.

It will avoid the scenario where contractors are expected to make changes to meet arbitrary standards imposed by NR, and provide an appeals process to ring-fence the privately funded work.

NR Chief Executive Mark Carne has given strong support to the findings, emphasising that he is determined to find ways for the private sector to invest in railway projects. He recognises that by unlocking private finance, improvements can be made that would otherwise not be possible.

The lack of public funds for enhancement projects in Control Period 6 (2019-24) is already evident in the High Level Output Specification published in July, and the accompanying Statement of Funds Available for the five years to 2024.

Many expected projects have been shelved, including electrification schemes. And despite what has been said, don’t let’s kid ourselves that bi-mode trains are a magic wand to provide like-for-like services. The reality is that the specification for IEP trains of this type does not match the power of the intended electric traction, which will increase point to point timings amplified by speeds limited to 100mph.

It can be expected that where these decisions have an impact on the expectations of devolved organisations holding responsibility for transport policy decisions, there will be objections about the lack of funding to carry out projects.

The Westminster Government cannot complain about this - it has created devolved administrations in Scotland and Wales that are greedy for more legal power and funding to justify their existence. The same applies to the elected Mayors that have extended beyond London to six population centres, including Manchester, the West Midlands, and Liverpool.

At the time decisions were taken to establish elected Mayors, there was enthusiasm for rail investment that supported efforts to rebalance the economy by providing higher-quality services.

It now looks as though we are back to square one, with future investment intentions heavily biased towards London and the South East.

Statistics on Government expenditure show that only three regions (London, East Anglia and the South East) generate a surplus in tax revenue over the cost of providing the vast myriad of public services that a modern economy demands. It is therefore an understandable reaction to invest to sustain successful economic regions.

As such, it’s no surprise that Crossrail 2 - a new link between south west London (Wimbledon) and communities in the north east of the capital - appears to have priority over the HS3 high- speed link between Liverpool and Hull. If this happens, the Northern Powerhouse vision will recede from the earlier priority it once held.

Rail investment in Wales also has much less certainty. This is something of an own goal, as the process for awarding the future Wales & Borders franchise has been complicated by asking bidders to contribute the ideas that might have provided a competitive edge to win the competition.

This has caused dissatisfaction among stakeholders, who will have no say about the heavy/light rail mix and timetable that emerges from the process before an invitation to submit final tenders is issued to the bidders.

It was originally proposed that the need to replace rolling stock operated on Cardiff Valleys and other local routes by 2020, to comply with legislation to provide trains that meet the needs of passengers with reduced mobility, would be the right timescale to electrify the routes concerned. A fleet of three- car electric units was therefore included in Control Period 5 (2014-19) funding.

Subsequently, powers over decisionmaking were devolved to the Welsh Government, which decided that a likefor-like replacement of local heavy rail services may not be the best long-term option, and that a light rail network should be considered that would involve the takeover of NR assets.

The Welsh Government has no prospect of funding these aspirations, so this will be a test of whether alternative options described by Professor Hansford can be turned into reality.