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Shaw Report rejects NR privatisation, but wants further route devolution

Network Rail will remain a public sector body for the “foreseeable” future, but the company should make greater moves towards devolving its routes and explore further options for private sector investment, according to recommendations in the long-anticipated Shaw Report.

In her report, Nicola Shaw said it should be achievable for her proposals, which represent the biggest shake-up of Network Rail in a decade, to be implemented by 2019, and for the next regulatory settlement for Control Period 6 to have been made on the basis of autonomous routes.

The head of HS1 noted that Network Rail is currently implementing a new operating model, which will devolve power to the routes. However, she added that this approach should go “deeper and faster” to enable the organisation to fully respond to the needs its customers particularly at a local level. 

Shaw also noted that routes should be empowered to operate as independent divisions within the overall Network Rail business and should be assessed individually against their ability to meet customer needs and expectations.

The report states that separate route-based accounts and regulatory settlements will allow the ORR to benchmark the performance of each route on standard regulatory metrics (such as safety, performance and financial efficiency), and encourage routes to improve their performance.

To effectively deliver deeper devolution there will need to be both regulatory and licence changes and the ORR will need to consult on these changes, the report noted. 

Shaw added that “what is clear is that structurally, Network Rail could be, and should be, more agile in how it responds to the changing wants and needs of its customers”.

Private investment

The report team has dismissed privatisation of the whole company, and instead has focused on solutions that may be appropriate for certain parts of Network Rail as well as for specific enhancement projects.

Options to introduce private sector capital in parts of Network Rail focus on either concessions or time limited licences. Shaw said the proposed model would yield benefits not only in terms of the impact on the public purse, but also greater autonomy, a different approach to management of the assets, innovation, efficiency and a focus on cost management.

Options considered for specific infrastructure projects are much more varied – from contributions from local property developers who will benefit once a project is complete to privately implemented schemes.

This news comes after Sir Peter Hendy, chairman of Network Rail, recently said that in order to deliver future projects in CP6 “we are going to have to see more third party contributions to some of these costs than anybody has seen so far.” 

“Network Rail (and its predecessors) has looked at different forms of private sector funding and financing in support of its enhancement projects in the past, but it has not taken this very far,” said Shaw.

“The private sector has a part to play in supplementing the resources available to invest and grow the railway to meet social and economic needs.”

Northern route

Having concluded that greater devolution to routes is required, Shaw added that it is important that routes represent the right geographies. On this basis, it has been recommended establishing a new route for the north, aligned with the political and economic geography and supported by institutional structures such as Transport for the North.

This new route would be formed from the northern sections of the current London North East (LNE) and London North West (LNW) routes. However, no other changes to the current Network Rail route have been proposed at this time.

Shaw has also recommended that there should be clarity of the government’s role in the railway and Network Rail, and that future changes should be supported by regulation by the independent ORR.

Reaction

Mark Carne, Network Rail chief executive, said: “I welcome Nicola’s report and her engagement with us and the industry in developing it. I’m pleased that she has concluded that the reforms we are introducing in Network Rail are the right ones. We are committed to putting passengers and customers at the heart of what we do and our devolved business model will put decisions in the routes, closer to the passengers and train companies. 

“I also endorse her desire to see more private finance coming into the railways. We have been successful with this in the past and I consider that more private money and funding from the people who will benefit from railway improvements is a sensible way to deliver a bigger and better railway for the nation.”

The government said it welcomes the recommendations of the Shaw Report, and will respond in full later this year. Also, to ensure an improved service for passengers through greater accountability and more competition, the government will also work with the Competition and Markets Authority to explore how their recommendations could potentially be implemented as part of the government’s wider reforms.

However, the ‎RMT says that publicly owned Network Rail assets from stations to power and other parts of the infrastructure, are set up to be knocked out in a fire sale to private speculators leading to further fragmentation. 

Mick Cash, RMT general secretary, said: “Although a strong union campaign has fought off the prospect of wholesale and early reprivatisation the Shaw Report still opens the door to a sell off of some of Britain's last remaining publicly-owned rail assets. 

“Foreign speculators will be queuing up again to plunder Britain's railways for every last penny in the same way as they have mopped up train operations and run them into the ground. RMT will continue to fight any further attacks on Network Rail and will continue to campaign for public ownership of the entire rail system.” 

Recently Network Rail triggered the potential sell-off of its electrical power assets in a consultation to test the industry’s interest in buying thousands of its overhead lines, substations and pylons. It has also appointed Citigroup to consult on a range of potential options to help plug its debt, which is estimated to reach £50bn by the end of the decade. One option is potentially selling off major stations, including London Waterloo, Manchester Piccadilly and Birmingham New Street.

However, the Shaw team has not commented on Network Rail’s property portfolio as work is still ongoing to take forward the £1.8bn asset disposal recommendations in the Hendy Review. They did note, though, that following these disposals, any remaining assets should be aligned with the routes in which they are based and be supported by the property management expertise in the Route Services Directorate.