New Government faces tough decisions over rail’s future
The new Conservative Government is faced with resolving a £2 billion hole in the rail budget, ongoing industrial action and deciding just what sort of railway we need post-pandemic.
RAIL has been a favoured element of Government spending in the recent past as part of the agenda to have a carbon-zero economy by 2050, which current thinking believes is only possible if there is a significant switch from road to rail use.
To achieve this, however, there is a growing need for substantial funding – not least because travel restrictions during the Covid-19 pandemic accelerated a trend to home working rather than having to commute to a central office. However, promises to reverse recent tax increases will result in smaller departmental spending budgets, which is therefore likely to reduce the money available for the railway network.
Rail revenue down
Prior to Privatisation in the 1990s, season ticket travel amounted to 50% of rail passenger journeys and as it was a captive market where fare increases did not diminish demand. But the ability to work from home means that commuters can save a considerable amount of money and, when it is necessary to attend a workplace, this does not necessarily imply travel at higher-priced peak times. As a consequence, the use of season tickets has plummeted and accounted for just 20% of sales last year.
The result of this is an estimated annual national rail revenue shortfall of at least £2 billion, bringing the need to reduce the cost base by a similar figure because the overall prepandemic income of close to
£11 billion per annum was broadly in balance with operating expenses. There was, however, a big financial divergence between individual operators that previously made premium payments and those receiving revenue support.
The reduced income is not evenly spread either, as the train operating companies are finding that the demand for discretionary travel in the leisure market has largely returned but there is diminished peak-hour demand. Looking to the future, this is not necessarily a bad thing in terms of overall rail economics as, in the past, very significant infrastructure spending has been necessary to cater for high passenger numbers at peak times.
If an example is needed, the decision to provide 10-car formations for South Western services radiating from London Waterloo instead of the previous eight-car sets entailed significant infrastructure changes as well as rolling stock replacement, but with current demand that capacity is no longer required.
Projects at risk
The biggest industry projects are HS2, Northern Powerhouse Rail, the East West Railway, electrification and digital signalling. Each of these has its own economic perspective, and the intended expenditure will no doubt be scrutinised to see if new demand patterns continue to justify investment.
HS2 has already seen two cutbacks as a result of the curtailed Northern Powerhouse Rail network: The eastern leg is to terminate at East Midlands Parkway (rather than Leeds), and more recently the Golborne spur has been axed, which was intended to allow access to the West Coast Main Line at Wigan for trains heading for Scotland. These services will now join the existing network at Crewe, although there has been a new Parliamentary delay in the Phase 2a extension of the route from the West Midlands to Crewe.
Doubts have also been raised about investment in the East
West Railway beyond Bletchley, with the transport secretary Grant Shapps (at the time of going to press) identifying this as an opportunity to reduce Government spending by up to £5 billion. This would see a cutback to the upgrade of the existing route between Bletchley and Bedford, and the new alignment between Bedford and Cambridge abandoned.
Network Rail has a plan to meet the target for net zero carbon emissions with an electrification programme covering most routes other than rural lines, where battery or hydrogen-powered vehicles will be used. It is only in Scotland that a firm electrification programme is in place, but the steep rise in the cost of traction current has weakened the financial case, and in the fullness of time some form of green levy will be needed to generate the funds needed.
In respect of the digital railway, industry enthusiasm is already tempered by the cost of in-cab equipment to provide movement authority for drivers. It has also become apparent that where there are complex track layouts, it is likely to be necessary to revert to the use of the existing technology given the number of route options available.
There is also a potential question mark over the creation of Great British Railways, which an incoming Government may well regard as a solution for yesterday’s problem. The future management style has already created a centralised response to negotiations for workforce pay and conditions, which has not been present for 25 years since British Rail days, but passengers are suffering through nationwide strikes as a result.
The current plan is for GBR to be a regional organisation based on the existing Network Rail structure, split up into Southern, Western (including Wales), North West and Central, Eastern (including the Midland Main Line) and Scotland. A small headquarters is promised, with NR suggesting this will be staffed by around 300 people.
Dispute attrition
Although the wave of rail disputes has the look of an unstoppable force coming up against an immovable object, there is only so long that any industrial dispute can continue until economic consequences influence the outcome.
Up to now, the immovable object has been the Government’s view that across-the-board increases must be confined to a 2% rise to reflect post-pandemic industry performance, where revenues continue to be depleted. With retail price inflation reaching 12.3% in July, the gap to bridge has become even wider.
The Government message is that a higher pay award must be justified by productivity gains. This has included the old hoary chestnut of expanding DriverOnly Operations (DOO), despite the inability to win support for this in both Scotland and the Liverpool City Region.
There are a number of distinct grades of staff where productivity initiatives have been identified, which includes NR maintenance staff covering track, signals and telecommunications, and electric infrastructure. A reduction from the current workforce of 10,000 to a figure closer to 8,000 is proposed based on a report from the Nichols Consulting Group, which is led by Simon Kirby who has long experience with Network Rail, Rolls-Royce and others.
The main recommendation is to improve workforce skills to enable multi-skilled teams to fix faults and reduce train service disruption in the event of infrastructure failure. The greater use of technology to allow remote monitoring is also recommended, similar to that in use with comparable industries where infrastructure
“The steep rise in the cost of traction current has weakened the financial case for electrification”
management is required.
NR has offered increased pay of 8% over two years and believes if this were put to a ballot by the RMT union it would be accepted by staff, as the package includes a commitment of no compulsory redundancy with training for displaced staff to enable them to occupy new roles.
The highest impact of strike action has been the lack of signallers, particularly at locations where mechanical signalling using absolute block regulations remains in use. This accounts for the inability to run services over lengthy distances in the West Country, North Wales and Scotland. It has proved possible to provide stand-in supervisory staff at the major Rail Operating Centres, allowing trains to be operated on main line routes such as the East Coast Main Line over the period of a single lengthened shift.
Overtime working
A key employer aspiration for train drivers is to replace the voluntary nature of weekend work and rest day cover. Train operators have generally had a policy of maintaining a vacancy gap, as it is cheaper to rely on overtime than recruit sufficient staff to make this unnecessary, while employees benefit as working overtime increased earnings. But this leaves a vulnerable situation because, if volunteers are not forthcoming, the timetable cannot be operated. This is currently the case with Avanti West Coast, where a drastic reduction in services has been necessary.
The lack of operational staff at stations has thrown up a serious impact for passengers using assisted travel arrangements, which are there to support passengers with reduced mobility. On strike days, this has denied some the ability to travel on those services that are still running, and brings the future legality of withdrawing labour into question if it impacts on disability legislation.
There is a difficult balance to navigate, but rail might be seen as a sector where the ability to make essential journeys must be protected, and it is not inconceivable that there will be a future legal regime that requires a basic network-wide service to be operated.
The role of the ticket office is another area of debate about future requirements, with industry leaders indicating that – like bank branches – their role has been replaced by digital technology such as mobile phones, as well as ticket vending machines providing an alternative to a counter staff.
It is, however, becoming clear that if ticket offices are to be shut on a network-wide basis, there will need to be a simplification of the fares structure to ensure that the cheapest ticket available is displayed by mobile phone apps and ticket vending machines. Products such as railcards that have been developed to maximise rail travel in specific markets may also prove difficult to replicate in a digital environment.