ARE BIG CHANGES AFOOT FOR THE RAIL INDUSTRY?

THE Chancellor of the Exchequer is presenting an emergency budget on 8 July to implement Conservative election pledges. Among these is a need for all non protected government departments to cut their budgets by around 18 per cent. The Department for Transport is not excluded and in examining where to shave billions off its spending projections it is likely to be taking a close look at forward plans for the railway since the industry’s Regulator, the Office of Rail and Road, has confirmed that Network Rail’s maintenance and enhancement programmes are both falling behind schedule.

On the other hand, the DfT may also be concerned that while slippage in major projects could slow the call on taxpayers cash, the costs of what Network Rail is able to achieve are often coming in much higher than expected or, as ORR elegantly phrased it: At the end of 2014-15, it [NR] had missed 30 out of its 84 planned milestones with some projects facing delays or cost escalations. Among these are major upgrades such as Great Western and North Transpennine electrification.

As for maintenance, track renewal is seven per cent behind plan; switch and crossing renewals are 37 per cent behind; signalling renewals 63 per cent in arrears; and overhead line renewals are 77 per cent below target. Timely completion of these works is vital for improving punctuality as well as the long-term sustainability and safety of the rail network, says the Regulator.

The combined problem of rising costs and failed completions against target is summed up in one key paragraph of ORRs recent Network Rail Monitor report: Overall expenditure on renewals in England and Wales is 14 per cent below plan, reflecting the shortfall in volumes and work in progress that has not yet been completed, but the work which has been delivered has cost 19 per cent more than expected.

Network Rail’s under-achieving at higher costs than expected is also a major concern for wider railway policies within the governments overall transport strategy. Over five years, the government plans to invest 73 billion in transport 15 billion on highways, 16 billion on the first stages of HS2, and most of the rest, some 38 billion, on the existing railway network.

Within the rail budget, NR is supposed to deliver 12 billion of infrastructure enhancements during 2014-19 (Control Period 5, CP5). But these are just part of what the Regulator describes as a high level of interdependency between [rail] infrastructure projects, the re-franchising timetable and rolling stock procurement and the resulting reallocation of rolling stock.

ORR points out that Network Rail’s infrastructure investment will be the critical enabler for planned step changes in train services, with significant timetable improvements planned for later in the control period [December 2018 as things stand at present].

However, ORR adds: The high number of missed milestones has raised serious questions about Network Rail’s ability to deliver future projects on time.

INTERDEPENDENCY

WITH this latest report on Network Rail, the ORR is highlighting the interdependency of the various components of the privatised rail industry, including track, franchise specifications, timetable planning and rolling stock both new and additional to cope with growing demand, as well as cascading or withdrawal of older trains.

Most senior people in the industry, including many who have been recruited during the last 20 years from elsewhere, now proclaim to have a good understanding of the complex interdependencies that require the disparate organisations to work closely together to serve the industry’s customers passengers and freight forwarders. Unfortunately, this interdependence was never recognised when John Major’s Conservative government was breaking up the industry and privatising bits and pieces of it between 1994 and 1997.

In 2006, after the first decade’s experience of the fragmented, privatised structure, the Conservatives then Shadow Transport Secretary Chris Grayling (now Leader of the House of Commons) declared the structure put in place by the 1993 Railways Act had been a failure and he promised significant changes if the Tories returned to power in 2010.

However, the 2010 election outcome forced the Conservatives into a coalition in which they could not implement all their policies. But now, since 7 May 2015, they have finally achieved a working majority again.

Back in 2006, Chris Grayling said his party had made a mistake in separating track and trains when British Rail was privatised, and that the split an arrangement that subsequent Labour governments, after taking power in 1997, did nothing to change had inflicted costs on both passengers and taxpayers, as well as hindering expansion.

Mr Grayling also warned with official figures then predicting rail passenger numbers would grow by more than a third by 2014 that with no plans for a matching increase in capacity on the network train overcrowding would get much worse.

Subsequent events have largely proved him right, with the most recent ORR data showing passenger journeys increased by 69.5 per cent between 2002-03 and 2013-14 but on a network that grew hardly at all, resulting in timetabled train kilometres increasing only a little. In 2008-09, trains kms increased by 4.2 per cent in, largely resulting from West Coast Route Modernisation, but since then there has been little other spare track capacity. Last year, train kms increased by only one per cent, due to lack of capacity on major routes.

In 2006, Mr Grayling said: We think that an important part of the problem lies in the structure of the industry that exists today. We think, with hindsight, that the complete separation of track and train into separate businesses at the time of privatisation was not right for our railways.

We think that the separation has helped push up the cost of running the railways and hence fares and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.

Arguably, the situation he described nine years ago is little changed today. An example is the remodeling of London Bridge station that has resulted in a huge number of passenger complaints and demands for compensation leading to Claire Perry, a Minister of State for Transport, having to assume overall control!

In 2006 Mr Grayling said the aim was securing a much greater degree of integration between track and train if the Conservatives were returned to power at the next [2010] UK general election.

Now that the Tories do have a working majority again and now that ORRs recent review of Network Rail has highlighted the continuing problems caused by the fragmentation and separation of the interdependent parts of the industry there is an opportunity to correct the failings identified by Mr Grayling nine years ago.

OPPORTUNITY FOR CHANGE

ACCORDING to The Financial Times, Richard Price, ORR’s Chief Executive, says Network Rail’s delays and cost overruns have been caused by problems with planning, including management of the equipment supply chain. He also reiterated concerns over financial transparency and data, saying: “We want to know how costs are estimated.”

Reportedly, Mr Price also wants to see some significant, wider changes and has asked the government to look again at how it pays for the railways.

About 60 per cent of Network Rail’s 6 billion annual turnover comes from the taxpayer, said the FT adding that Mr Price wants to reform this relationship so the government grant goes directly to the 22 passenger train operators whose revenues are more closely tied to keeping passengers satisfied.

He suggested: This would create proper commercial arrangements between Network Rail and the train companies and incentivise both sides to keep costs down.

Mr Price told the FT that other recommendations could include more devolution, with the potential for eight separate regions (based on Network Rail’s route organisations), together with a co-ordinating body carrying out timetabling and central functions, including having more influence over Network Rails budgets. But he did not explain how the Department for Transports new Rail Executive organisation might fit in with this.

Nevertheless, such an approach could align with the new Conservative government’s commitment reinforced in the Queens Speech to devolve major transport responsibilities to regions and combined city authorities, as already agreed for Greater Manchester and by creating Transport for the North, with similar arrangements now also being proposed for the Midlands.

Already there are separate Network Rail organisations for Wales and for Scotland, which have their own devolved governments and in the case of the latter an alliance is now being formed between the principal train operator ScotRail (now run by Abellio and accountable to the Scottish Government) and Network Rail Scotland.

Chancellor George Osborne has led the charge towards regional devolution. He could now well reflect on what Chris Grayling had to say in 2006 and use his budget on 8 July to set out further proposals that could significantly improve how the rail industry is structured, financed and managed.

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