Comment

26.01.18

Forward look: 2018, CP6 and its context

Neil Robertson, chief executive of the National Skills Academy for Rail, makes three key predictions on what’s next for the rail industry in 2018.

It’s the time of year for looking forwards (hopefully positively), and I’ve been asked to give you a few thoughts on what might be coming up. No one I know has a crystal ball so my guesses are as good as yours, but hopefully they will be stimulating. I’m going to look at the funding settlement and new regulatory period and the political and economic context, especially – but not exclusively – from a skills perspective.

CP6 and funding

Network Rail and DfT have secured an excellent settlement. It is a fantastic achievement and reflects a growing perception of the importance of rail. But the hard work starts here to secure the money that has been earmarked against different projects. Proof will be needed that the money will be spent wisely and, crucially, efficiently. Let’s focus on the latter and how it can be achieved.

Recent years have seen rail operations productivity improve in line with economists’ expectations. It is one of the few sectors to do so, actually. In contrast rail infrastructure, in common with much of the wider construction sector, has lagged, largely due to two factors – serious wage inflation and relative lack of technological progress. Why?

Quite simply, there has been underinvestment in skills, people, processes and technology in the rail infrastructure supply chain. This is a UK-wide problem, but rail compares unfavourably with other sectors. This is because forward confidence is low in the supply chain. Our recent study found the average forward confidence of a rail supplier was between 11 and 24 months. The return on investment spending on skills and kit will be around three years plus. So, the whole industry will have to show that this problem can start to be addressed if the full investment is to be realised.

Prediction 1: Rail infrastructure business plans will have to do more to show how they will drive efficiency, by reducing wage inflation due to skills shortages and increasing investment.

Brexit and our workforce

I suppose this is cheating, really, as everyone knows Brexit won’t happen this year. But it will start to dawn on us what Brexit will mean and where we will see changes. Given the political leadership of the negotiation team, and the lack of sharp opposition, it seems likely that deals will be at the firmer end of the spectrum. Most scenarios say that inward migration will be reduced – the OBR thinks by 50%.

At face value, rail is remarkably protected from Brexit, relative to other sectors, as less than 10% of the directly-employed skilled staff are from the EU. The overall figure for the whole industry is 20%, so if the OBR is right, we lose 10% of our workforce within three years. Manageable, you might say, and an opportunity to train up some local people. No bad thing.

But the headline figures hide a fairly dramatic finding that around 50% of the supply chain staff south of Derby are from the EU. So it follows that we will eventually lose half of them. This is more serious and will certainly lead to skills shortages and consequently wage inflation, just at the time we need to show that we have this in hand. What can be done? Simple, but difficult: the supply chain needs to train more local people, particularly at level 2. So, the solution to the first problem is also the solution to the second, although the problem just got bigger.

Prediction 2: A Brexit deal which reduces migration is likely, so strenuous efforts will be made to retain the EU skilled workers we already have, and the industry will seek to get its higher-level skills centrally on a revised highly-skilled migrant programme.

Government action

We need to be slightly more tentative here, as recent events have shown that anything can happen, and probably will. But here goes… The Theresa May government is likely to survive the year, albeit in a compromised fashion. The transport secretary is also likely to survive. So some policy stability can be expected. But there will be very little scope for legislation – and most significant government action requires legislation. So there will be ‘less government.’ This may well fit with the broader philosophy of our political leadership, although I’m sure it will occasionally frustrate them.

Prediction 3: Relatively steady as she goes politically, but with a lighter touch. Will the private sector fill the vacuum? Or will the unions?

Comments

Roy Pemberton   27/01/2018 at 02:11

A good summary that certainly outlines the three key factors. However, with regard to Brexit and our Brexit, I'd add a further couple of factors not identified in the summary. One of these is the impact of any change to trading with EU companies for the supply of rail vehicles and systems. Much of the UK market had already become highly monopolistic, resulting in lack of competition and lack of innovation. I won't name the most obvious categories of infrastructure or the company names - those in the industry know then well - Brexit can only make even more difficult the possibility for seeking alternatives from companies based in Europe, some of whom have been leading the charge on Railway upgrade projects, new lines, etc. in our European partner countries. Secondly, in addition to the direct migrant workforce based in the UK, many of the contractors and subcontractors fit infrastructure projects use offshore offices operating in European partner countries, and these don't only bring cost savings but bring skills to bear from major rail project in those countries, in particular Eastern Europe where there have been some significant major rail infrastructure projects, some far greater in scope than any being undertaken in the UK. As a footnote, I do have to wonder about the conclusion on Government en the Transport Secretary makes the statement that he can see no benefit to the public from Electrification and then, when challenged on the environment says the future is in Hydrogen power. Does that feature in the CP6 planning, wth a robust, visible and viable plan for implementation? Or is that for CP10 or later still? But of course, that will be a later government's problem, along with the plan for teleportation.

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