by Phil Marsh

History repeats itself yet again so far as the railways and politicians are concerned- will they ever learn?

Published: 29th July 2015

Government orders a strategy report on the future of Network Rail

Twenty one years after the Conservative Government’s railway privatisation brought Railtrack, the Government has decided that the way their replacement Network Rail (NR) operates should be changed.

The Department for Transport (DfT) has asked High Speed 1 boss Nicholas Shaw to examine the way NR is funded. The remit is brief but concise and it is:

1. to develop recommendations for the longer-term future shape and financing of Network Rail

2. the work is to be presented jointly to the Secretary of State for Transport and the Chancellor of the Exchequer

3. it will divide into a scoping study and a detailed report with implementation proposals, the former to be completed in autumn 2015, and the latter by the next budget.

Reading between these brief lines, it seems that as the report will be presented to the Secretary of State for Transport and the Chancellor of the Exchequer the Treasury is now likely to openly run NR’s finances. This can be expected to start from the 2016 Spring Budget and given that NR is ‘just another Government department’ this is not surprising. Despite the Government saying a year ago when the transfer took place it would be ‘business as usual’, which clearly it is not!

All budgets generate instant headlines but it is only when the analysts look into the accompanying Red Book that the detail behind the headlines emerges. The July 8 Budget’s detail contained details that the government had asked Nicola Shaw, Chief Executive of High Speed 1, to advise the government on how it should approach the longer term future shape and financing of Network Rail. Ms Shaw will work closely with Sir Peter Hendy, the new Chair of Network Rail to reach her conclusions which will be reported back to Government in Spring 2016.

Two for one?

But isn’t the Office of Rail and Road Regulation (ORR) also looking at this?

Yes, ORR is also looking at the future of NR and current thinking suggests that the company should be split into eight regional businesses to bring more accountability and commercial awareness combining to reduce the cost to taxpayers of our railways. This of course was the remit of The Value for money report authored by Sir Roy McNulty four years ago.

ORR has suggested that NR should concentrate on its central function of co-ordinating timetables and planning the development of the 20,000 track miles in its network. Each of the eight divisions could have its own balance sheet as well as control over its assets and holding its own operating licence.

They said:

Richard Price, chief executive of the ORR, said the changes were aimed at lowering the £6.3bn annual cost of running the railways and that this proposal would bring UK railways into line with other regulated industries, such as water, utilities and aviation. “It’s not as if in other industries there is a great, single, monolithic group which internalise all decisions within it,” he said.

How this would play out with European legal requirements is not addressed as it was precisely this that brought the split in April 1994. It was left up to each Government how they implemented the accounting separation between train operations and infrastructure maintenance costs though.

“We want devolved decision-making so that it’s closer to the interests of the railway’s customers, while at the same time having co-ordination within the system on a commercial basis to make sure it is focused on giving the customer a better experience,” Mr Price said.

£10million every day

The Government subsidises NR by about £10million every day and this in turn reduces rail franchise track access charges to NR.

This is the reverse of what happened initially in privatisation and the latest ORR proposal says that the UK should return to this so that rail companies pay the full track access charges to make NR more accountable to customers. The extra costs would be subsidised by transferring the £10million daily payment directly to franchisees who would pay into each of the eight NR routes to create a separate set of accounts for each division.

By paying this direct to train companies, regional independence would be greater with each city dealing directly with local railway management rather than NR HQ. The eight divisions would be responsible for maintenance and renewals and then compared with other regions to see if they are all working efficiently in financial terms.

Reporting back and the start of consultation

The ORR is expected to start consultation on these plans next year and no doubt will help to inform the financial settlement for Control Period six which starts in four years’ time.

Meanwhile The DfT’s review carries on alongside the ORR consultation so nobody really knows what will happen but what is for sure is that one Government reorganisation will be bad enough but having two competing plans is a recipe for worsening performance as staff will have to concentrate on introducing change while running a busy railway.

The DfT team looking at the future is headed up by Richard Brown who has just been appointed special director of Network Rail to monitor progress and reports directly to The Secretary of State for Transport. In other reviews Mr Brown has suggested that franchising should be carried out by an agency rather than the DfT. Again, this used to happen but the agency called The Strategic Rail Authority was closed over a decade ago.

Dame Colette Bowe will look at how to make plans for improved investment planning while the new NR Chairman Sir Peter Hendy, is looking at how to get the massive investment programme back on track – literally.

Hopefully everyone will understand why rail staff are not having an easy time at the moment or for the next few years as they have to grapple with an ever changing political scene while keeping trains running.

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