Railway inefficiency
Nearly half the money spent on rail infrastructure is being used inefficiently, claims National Skills Academy for Rail Chief Executive.
NEARLY half the money spent on rail infrastructure is used inefficiently, claims National Skills Academy for Rail (NSAR) Chief Executive Neil Robertson.
He also claims that the railway is far more wasteful than other industries in the way it spends money.
“Between 50% and 60% of the money spent is efficient… 40% is not. Ten per cent will probably never be spent efficiently, leaving 30% we can do something about,” he said.
“Senior civil servants accept this. These numbers are not disputed. It won’t be fixed until Network Rail is properly economically regulated. The Office of Rail and Road [ORR] is great at safety but has had little impact on the economics.”
Robertson says productivity could be improved by resolving people problems: reducing wage inflation and tackling a shortage of skills.
“The cost of people working in rail infrastructure has doubled in a period during which it has fallen in other sectors. It is the highest of any sector. That’s from government data,” he says.
NSAR calculates that wage inflation will rise from 5.6% to 8% in the supply chain, with peak years in 2022 and 2025.
“Train driver wage inflation is 6% a year,” he said. “But for signalling engineers it’s 9%. And high-voltage workers, 11% a year.”
If Robertson’s numbers are right, the waste from poor productivity and inefficiency undermines the economic benefits promised by HS2, Northern Powerhouse Rail and East West Rail.
“The railway is one of the best ways of creating jobs. I’ve been telling people to stop thinking of HS2 as just a railway and to think of it instead as a job creation scheme.
“Government is attracted to invest in the North, expecting that it will create construction jobs as well as operational jobs. It calls this levelling up. On the current trajectory, this will not happen.
“There aren’t enough skilled people in the North to build the railway. That shortage pushes up wages. We are not on track to deliver value for money. NSAR has cautiously estimated the economic
Source: The National Skills Academy for Rail. value of HS2 jobs to be £6.3 billion. The practical impact of wage inflation would be to reduce the claimed economic benefits by 40%, or £2.5bn.
“The jobs are the economic case. But if we are creating them at massively inflated prices, the case is not there.”
Network Rail Eastern Region Managing Director Rob McIntosh agrees with Robertson on the shortage of skilled workers. He says 45% of his maintenance staff become eligible for retirement over the next ten years.
“We have to start growing the skills and capability we have now, to avoid productivity losses and wage inflation in ten years’ time. We will need different types of people and different skills to today.”
Robertson believes a major contributor to rail’s inefficiency is uncertainty: “The supply chain only has business confidence for about 18 months. But spending to produce productivity increases requires a return on investment of three years or more.
“The water industry has five years forward business confidence. Power has four years. As an industry, rail does not understand the impact of that on unit costs. Why? We have never measured it. We have never been asked to. This would fix many of the problems and bring a 10% improvement in productivity.
“The sector’s best benchmarks are advanced manufacturing, energy and utilities. They’ve done all this. Rail has not.”
NSAR points to the offshore wind industry for comparison.
Unit costs of offshore power were above £150 per megawatt hour. Long-term contracts with price guarantees were agreed with suppliers. In turn, they invested in people and technology. The price has now dropped to £47 per megawatt hour - a level where incentives and subsidies are barely needed.
“But we are not doing this with the cost of infrastructure,” said Robertson.
“It won’t be fixed until Network Rail is properly economically regulated. Practically no one disagrees with me on this. But
ORR isn’t doing it. It’s not about fining Network Rail if it gets
things wrong. Ofsted doesn’t fine schools, but it still gets what it wants. Because if schools perform poorly, people get sacked.
“On the railway, no one gets sacked for failing to spend money efficiently, or for wasting money. No one has the incentive to challenge the unions and change working practices to improve productivity. We have to change the incentives to make value for money matter.”
Dan Brown, director of railway markets and economics at the ORR, responded: “We set requirements for Network Rail to become more efficient. We look at all of Network Rail’s costs and benchmark those against other sectors. There are some quite powerful incentives to deliver those targets. They are largely successful.”
And Scotland’s Railway Managing Director Alex Hynes told RAIL: “ORR holds us to account. I used to work at ORR, and I know there are brilliant people there. But if you study regulatory theology, there is a view that regulators are always reacting, because they are one step removed from the business.
“Professional railway people should want to deliver at prices that are efficient and competitive, and not do it grudgingly because the regulator has told them to.
The only people we can change is ourselves. We have to fix our own problems.
“Transport Scotland is very, very demanding. It is pushing us every single day. Devolution into Scotland has enabled much closer working between the capital delivery people and the route people and the train people. For me, there is a closeness which helps. The teams can’t do their best work in isolation.”
Hynes also points to a longerterm vision than his colleagues in England work to: “Last July, Transport Scotland published its Decarbonisation Action Plan, which is an extraordinary piece of political leadership in the teeth of the pandemic.
“We have 14 years to remove diesel power, so we now know we have to deliver the equivalent of a Stirling-Dunblane-Alloa electrification every year from now on. We need to get really, really good at this. We need to have as little disruption as possible - our competitors now are Microsoft Teams and Zoom.”
NR’s Rob McIntosh leads Project Speed, which aims to accelerate the way infrastructure work is
“Government calls this levelling up. On the current trajectory, this will not happen.” Neil Robertson, Chief Executive, National Skills Academy for Rail
planned and delivered.
“We are behind other sectors, because we are so complex in structure,” he said.
“Our discipline around unit costs has dissipated. We are now pushing hard on what we call ‘pound in the ground’ - the physical cost - and the ratio to the cost of managing that.
“The way we organise our workforce has lacked reform, so a lot of our practices and skills are aged and backward-looking. From Project Speed I take away that the generation of project managers we have now don’t have the right mindset. They’re not all seeing how we can drive productivity and efficiency in a way that directly affects passengers. We need to look towards best practice of the future, where we will need different types of people with different skills.
“We have to make the money we have go further, and make a greater contribution to the UK economy. It will come through leveraging technology to modernise working practices that have moved little since British Rail. And we must make the case to government to get away from the drip-feeding of funding.”
Rob Morris, managing director of Siemens Mobility, is not a career railwayman. He draws on a working life in mining, building power stations and other civil construction. He warns that the railway’s stakeholder relationships are so complex that the disincentives to progress can be overwhelming.
“In this country we are obsessed with short-term costs,” he told RAIL.
“The rules of the game are all about the cheapest option - the lowest-cost bid. That creates a mindset problem - an adversarial process, not a partnership.
“This is your opportunity to make the most of Brexit. It’s about ‘Made in Britain’. Whatever you do, build it here to give long-term value, rather than the false economy of shifting the spend overseas. The technology is already here. We are just not investing in it.
“Making the railway digital has massive socio-economic benefit. It hits all the buttons that are important to the country at the moment. It helps decarbonise. It helps levelling up. It develops skills. It reduces costs and improves capacity.
“But we have people waiting to work on a live infrastructure, waiting for it to become available overnight or on a Bank Holiday. We get on for only a few hours. It creates massive inefficiencies.
“You should be investing in technology that avoids going onto the infrastructure again and again. You put it on board the trains and suddenly your costs start coming down. With signalling in the cab, and trackside architecture taken down, it becomes about software updates, not trackside renewals.
“We should be moving towards signalling as a service. Like your mobile phone contract. A huge amount of signalling is life-expired. This is an iceberg, and we are heading towards it really quickly.”
NSAR says there is “compelling evidence” that the supply chain can’t meet future demand, especially in the north of England. It calculates that the cost of failing to tackle the problem would be at least £1bn each year. Assuming it takes at least five years to increase the supply of skilled workers, a strategic plan is needed now.
“Bluntly, work in the North should be delivered wherever possible by the people of the North,” said Robertson.
He has produced a ‘finger graph’ which he provocatively calls Professionalising the Workforce (opposite). He says it is the culmination of four years of research.
“There are six fingers on the graph. Those are the six things the industry needs to do to boost productivity. Do those six things, and you will see a 30% reduction in unit costs. Rail currently does little or none of it. This is all fixable.”
Network Rail is clear about the need for long-term certainty in place of the five-year cycle of boom and bust.
“The real gains lie in the utilisation of technology and how best we use our people to be more productive and more efficient,” said McIntosh.
However, the Treasury will need to accept a pattern of spending that transcends the short electoral cycle of politicians. And the wholesale reform of working practices advocated here would inevitably lead to conflict with the unions, whose raison d’être is to protect the interests of their members, who have benefited from the years of rising wages that have bought better lifestyles. Reform would create losers as well as winners. Politicians rarely choose to risk confrontation with the losers.
Robertson concluded: “There is an opportunity here. Too many people don’t have the right skillset. They don’t have the right management skills. They don’t have digital skills. They don’t have commercial skills. We are short of skills, so we have to pay top dollar for them.
“Even at my bluntest, I don’t want to say we are the worst of any sector, reckless or irresponsible with money. But I will say we are starting from a low baseline compared with other sectors. But the good news is that we know what has to be done to change that.”
Dig deeper: Paul Clifton offers further analysis in the latest issue of RailReview. Visit www.railreview. com
“In this country, we are obsessed with short-term costs.” Rob Morris, Managing Director, Siemens Mobility