Making the railway more efficient

5 September 2017

By John Larkinson, Director of Railway Markets and Economics.

John Larkinson, Director of Railway Markets and EconomicsOn 20 July the Secretary of State and the Scottish Ministers were due to publish the funding that would be made available to Network Rail for England & Wales and Scotland respectively, for 2019-24 (‘control period 6, CP6’). The government did not have sufficient information at that time to decide this and the date for the decision is now 13 October. This funding covers Network Rail’s core business – for operating, maintaining and renewing the rail infrastructure.

A lot is at stake. Network Rail currently spends around £6bn a year on its core business (operations, maintenance and renewals). And the delay does not reflect a lack of intent – government, Network Rail and ourselves have been discussing funding intensively over a number of months.

The cost of renewing the network

There are two big, related, issues – the volume of renewals work that should be carried out and the efficiency with which Network Rail delivers its core business work. Over the last 3 years that efficiency has fallen by around 5% and within that aggregate number the biggest problem has been with the cost of renewals.

Renewals costs had already started to increase when Network Rail was reclassified as a public body in 2014.  The combination of renewals cost increases and a fixed borrowing limit following its reclassification, led to repeated re-planning of work. This eventually led to a downward spiral of deferred work and a higher cost for the work done.

By the end of this control period, around £3.7bn of renewals will have been deferred against a forecast spend of around £14bn for the 5 year period. If this work keeps getting deferred then the condition of the rail assets will deteriorate and this will have impacts such as more trains running late. In February we wrote to the Department for Transport making the case for renewals volumes to increase during CP6 and this has been accepted in the Secretary of State’s High Level Output Specification, which sets out what the government wants Network Rail to deliver.

Working with industry to improve efficiency

Network Rail knows it needs to improve efficiency and is committed to doing so. It continues to develop its business plans, which will be produced at a route level, reflecting local decisions based on local factors. But government needs greater assurance that no stone will be left unturned in the search for improvements. To that end, we have commissioned an independent review of whether Network Rail is making sufficient progress on its business plans and we are working with the industry – operators and the supply chain – on what the whole industry needs to do differently.

We will be bringing stakeholders together to debate next steps on efficiency this month, and drawing on this work to provide further advice to government, ahead of its decision on the funding it will make available.

*Please note that these figures are based on our July 2017 Network Rail Monitor, and not the annual efficiency and finance assessment published in October 2017, which updates efficiency and renewal estimates.