Is it shake up or break up for Network Rail?

Government is to channel Network Rail’s funding through the train operators to “put customers back in the driving seat” and wants the operator to push ahead with devolving power to its regions.

Major upheaval in the way Britain’s rail tracks and stations are run is on the cards after an announcement in background papers to the Budget yesterday that funding for Network Rail will now be channeled through train operators and that a dedicated body is to be established to realise value from regeneration round stations.

Government also announced that it has asked High Speed 1 chief executive Nicola Shaw to advise on the longer-term future shape and financing of Network Rail. She is scheduled to report before the March 2016 Budget.

This follows up on actions already taken by Government to pause two electrification projects and install Sir Peter Hendy as chairman at the national operator.

In addition Network Rail chief executive Mark Carne explained at the Tomorrow’s Rail conference that Dame Colette Bowe, who was brought into Network Rail two week’s ago by Transport Secretary Patrick McLoughlin and who has been involved in cleaning up the banking industry, will be looking at how the control period process by which the operator is allocated its budget should work in future.

With Network Rail now back in the hands of Department for Transport and its ability to increase debt now halted as its funds are firmly on the public books, Government is shining a strong light on how the operator is run. Issues of delivery are also high on the inspection list given that the key measure that affects public satisfaction, punctuality, is on a downward trend.

Network Rail's troubles at Christmas and the realisation that the private sector regulatory sanction of fines is pointless for a public sector company as effectively Government would be fining itself have undoubtedly also concentrated minds at DfT and left it wondering if the current format and oversight of Network Rail are right going forward. Channelling public money through private operators is an interesting move and could be seen as a step towards formally reuniting train operators and track in individual regional bodies with responsibility for everyday track maintenance and renewals. 

Meanwhile former commissioner of Transport for London Hendy has been asked to “bring to bear his experience and expertise and do what is necessary to ensure Network Rail can deliver effectively and operate the railways safely” Government said. He is to report in the autumn with a plan “to get the rail investment programme back onto a sustainable footing”.

Currently regulator ORR is investigating why Network Rail has significantly underperformed against CP5 targets to date and delivered less renewal work than it planned, with track renewal 7% behind plan, signalling renewals 63% behind,  and overhead line renewals 77% behind target.

Government will also take further action to improve incentives and drive improvements in Network Rail and the wider rail industry, the Budget papers said. This includes:

  • Asking Hendy and Carne to continue with the work started in Network Rail to devolve more power to route managers closer to the front line, so that the railways are more focused on delivering what passengers need and to drive comparative benchmarking of the efficiency and effectiveness of individual routes – to drive up performance across the network
  • Changing the way it channels public money through the industry, directing it through the train operating companies, so that Network Rail focuses firmly on the needs of train operators, and, through them, passengers – this will put the customers of the railway back in the driving seat in demanding efficiency and improvements that matter to them, making the best use of scarce capacity on the rail network
  • Introducing a new approach to station redevelopment and commercial land sales on the rail network, building on the experience of regenerating land around Kings Cross Station and Stratford in East London – the government will establish a dedicated body to focus on pursuing opportunities to realise value from public land and property assets in the rail network to both maximise the benefit to local communities and reduce the burden of public debt.

With regard to the control period system Carne explained that 75% of the £8bn associated with major projects in the current CP5 were at the earliest phases of development and the expectation had always been that costs might change and rise as they were developed, increases which could have been covered by increasing debt.

“But because of the change in our debt status we can’t just continue to add debt,” he said. “We need to reflect on that going forward.”

His preferred option for major programmes such the introduction of ETCS (European train control signalling) across the network and which would increase capacity by 40%, is to run these as ring fenced operations like Crossrail and Thameslink.

The piecemeal approach at the moment means that the signalling upgrade would not complete until 2062 “when I will be 103!” said Carne.

‘The challenge I have set in Network Rail is find out what it will take to get that done by 2029. Don’t say it can’t be done. Tell me why and when we know the hurdles we can tackle them, and be more aggressive in tackling them. It is vital for our country,” he added.

Quite what shape Network Rail have taken by the time his team report back is unclear.

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