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DfT allots £48bn for CP6 alongside new major upgrade funding process

Transport secretary Chris Grayling has announced £48bn spending on railways from 2019 to 2024, including more maintenance and a promised increase in renewals.

The figure, quoted in the Statement of Funds Available (SoFA), is £10bn greater than the previous control period and has been greeted with relief from rail interest groups, who have been concerned about uncertainty surrounding ongoing funding.

However, just £35bn of this cash pot will come directly from government, with Grayling expecting the remainder to “be funded by income Network Rail receives from its customers (train operators, both passenger and freight) and its commercial activities”. 

“These amounts will be refined during the regulatory process, which will produce by summer 2018 detailed draft amounts for the 2019 to 2024 period for consultation. Budgets will be set at route level, as part of the devolution of more accountability and authority to Network Rail routes, driving change in the organisation,” added the transport secretary. “The regulatory process will conclude with a final determination in October 2018.”

New investment will also include a completely separate funding process for major upgrades designed to ensure value for money, which will be set out in greater detail later this year. The DfT hopes this new process will provide greater rigour in investment decisions.

The Railway Industry Association (RIA) has met the plans positively, specifically pointing to separation of funding as a key decision.

“We applaud the publication of the SoFA today, which sets out Network Rail’s infrastructure funding arrangements in respect of operations, maintenance and renewals for the five-year funding period beginning on 1 April 2019, known as CP6. An increase of £10bn has to be strongly welcomed,” said Darren Caplan, RIA chief executive. “The commitment to increased funding announced today is recognition of the need to counter the increasing backlog of renewals work.

“This settlement will help Network Rail and its supply chain to maintain the UK’s rail system to the greater benefit of the paying passenger, freight companies, UK PLC, and represents a good deal for the taxpayer.

“On NR’s major projects, or enhancements, we look forward to hearing what the government has to say later in the year.

“The industry is aware that efficiency savings are still required in CP6,” Caplan continued. “Through RIA’s Renewals Cost Working Group, we will continue to work with Network Rail and the Office of Road & Rail regulator, to improve renewals efficiency.

“By developing more collaborative working practices, investing in new technologies and innovations and working more closely with Network Rail and the government, the supply chain is confident it will deliver the maintenance and upgrades to the UK's railway infrastructure required to help meet the growing demand for railways from both passengers and freight.”

Poor renewals volumes towards the end of CP5 had caused widespread fear among rail groups after NR costs soared and productivity reportedly slumped.

However, Grayling previously said the rail network company would not receive any more loans and will meet the obligations it has to its bondholders.

Caplan explained RIA's fears: “To deal with the increased activity in CP6, it now becomes even more important to address the reduction in renewals volumes during the last 18 months of CP5, to March 2019.

“RIA continues to urge the government to bring forward £500m of CP6 funding into CP5 to bridge that gap, increase the level of design ‘Development Work’, and ensure our world-class supply chain can support the UK’s railway both now and in the future.”

Spending money effectively

The funding, which includes £34.7bn supported by direct government grants with the remainder coming from track access charges and other income, such as from property assets, comes on the back of the secretary of state’s controversial comments in the High Level Output Specification (HLOS) in July, where he promised to increase the level of renewals but did not comment on finances for the project.

Following today’s SoFA announcement, the secretary of state wrote to Parliament: “Given the need to spend public money wisely and to incentivise the industry to do so, I believe the funding envelope published today is stretching yet achievable.

“I will continue to push NR to improve its effectiveness and efficiency. In particular I support an ambitious approach to route devolution, so that Network Rail is more focused on its customers. I will also modernise the government’s oversight and assurance arrangements for NR to properly reflect its public sector status.

“I have taken steps to ensure that this money is spent more effectively and that the problems with cost and delivery which occurred during CP5 are not repeated. I will also continue to drive improvement across the wider industry, including the franchising system.”

Other rail organisations have also responded to the statement, most pointing to the additional upgrade funding as a positive direction for the industry.

Anthony Smith, chief executive of independent watchdog Transport Focus, said: “Passengers will welcome this ongoing high level of railway investment. Further investment through future major projects and franchises will boost the spending pot even more.

“We’re pleased to see that government is listening to what passengers want – better day-to-day reliability – and making that the main focus. Passengers tell us they want more reliable trains, a better chance of getting a seat or at least standing in comfort, and less delays. This investment will help underpin these improvements.

“The proof of the value of this spend will be when passengers start to see more reliable services and better value for money. Passengers now pump around £9bn a year into the industry. In return they should expect the basic promises made by the industry to be kept.”

'A vote of confidence'

Network Rail boss Mark Carne, who wrote for the latest edition of RTM about his ambition of acting like a business, said the increased funds would allow millions of passengers to “experience significant improvements to their services” over the next 12-18 months.

Meanwhile, Paul Plummer, chief executive of the Rail Delivery Group, commented: “Sufficient funding of today's railway is essential to sustaining its reliability and safety so we welcome this important milestone. This decision recognises the importance of our railway to the economy and to the communities and customers it serves and it represents an important vote of confidence in the industry's ability to deliver while providing greater certainty for jobs and investment in the supply chain.

“By working together, freight and train companies, Network Rail’s routes, and their supply chains will ensure that every pound is well spent to deliver real improvements to customers, communities and the country.

“We will continue to work with government to make compelling cases for further funding to enhance the network so that it can meet increasing levels of passenger and freight demand and deliver for Britain.”

The news comes just days after a report from the Urban Transport Group labelled rail investment as “high value for money”, citing transformative improvements in surrounding areas and a potential increase in jobs and housing.

Top image: David Mirzoeff, PA Wire

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