Comment

CP6: Room for improvement

Darren Caplan, chief executive of the Railway Industry Association (RIA), assesses Network Rail’s confirmed spending plans for CP6.

The 31 October may be more popularly known as Halloween, but in the rail industry all eyes were on the ORR as it published its final determination.

The determination set out the final funding arrangements for Network Rail over CP6, the next five-yearly funding cycle which starts in April 2019. What does the new funding cycle mean for the rail industry, and how could it be even better?

Funding

First, we had the funding for rail infrastructure confirmed with £48bn for the rail network in England and Wales, of which £35bn is for operations, maintenance and renewals, with other costs like electricity supply and ‘Schedule 4’ – which compensates train operators for the impact of planned service disruption – comprising the remainder.

With regard to renewals, there was an allocation of £16.6bn, a 17% increase compared to the current control period; we believe roughly £10bn has been set aside for enhancements, though these are generally ‘Hendy Tail’ enhancements carried over from CP5. In Scotland, there was a further £4bn to support the Scottish Government’s requirements – which were noticeably more specific. Overall, though, this is a positive settlement for the railway industry, which shows the government taking rail seriously and investing in renewing the network.

Of course, it is important to consider how this money will be spent. At the RIA, we have been campaigning over the past year for a smoothing-out of workloads across each control period to ensure suppliers do not see large peaks in work followed by sharp falls. Our research has shown how detrimental ‘boom and bust’ funding is for the UK rail network, impacting the ability of businesses to recruit and retain staff, stopping investment in new innovations and technologies, and threatening the survival of SMEs. It also hinders efficiencies and adds up to 30% to costs.

It was therefore positive to see the ORR highlight ‘boom and bust’ funding as a concern, and Network Rail now has a remit to look at how it can smooth workloads. However, whilst the ORR is suggesting the profile for renewals in CP6 be smoother than for previous control periods, there is still much more work to do, particularly in signalling.

Encouragingly, the Transport Select Committee recommended that the government work with RIA and others to identify ways to smooth out ‘boom and bust’ and, by September 2018, the government accepted the recommendation in full. We look forward to taking this work forward in the coming months.

In Scotland, the government is ahead of the game on this, explicitly recognising that “efficient delivery is optimised by steady workbanks, avoiding peaks and troughs.” They couldn’t put it better: “The Scottish Government considers that significant rail investment funds should be deployed by Network Rail in a manner that supports sustainable economic growth in Scotland, including through the creation of secure rail industry employment within Scotland.” This approach needs to be emulated throughout the UK.

Enhancements

A major difference in CP6 from previous control periods is the removal of enhancements from the ORR Periodic Review process. This means that the DfT will now have a greater say over enhancements and that individual projects will go through a rigorous ‘stage-gate’ process.

Whilst the new process helps ensure appropriate checks and balances on what are, after all, publicly-funded schemes, and helps to secure more private finance in rail (a key recommendation of the Hansford Review into contestability), there is a real concern that the lack of a visible enhancements pipeline may lead to a hiatus in activity over the coming years.

The Rail Network Enhancements Pipeline, published last year, contained no construction-ready schemes, which means there will be a drop-off in enhancements activity. This is worrying, because the skillsets for enhancement projects are not the same as those of renewals as they are more multidisciplinary; the industry could lose specialist skills, which would be both difficult and expensive to replace. RIA will be engaging with the DfT about this early in 2019 too.

R&D Funding

The ORR’s final determination also set out the funding Network Rail would have for research and development, which has been confirmed as £240m. This is welcome, and will allow the industry to continue to innovate in infrastructure products and services.

However, there is no R&D funding allocated to rolling stock, train operations, or cross-industry innovation which could directly impact customers. As the rail network is a system, it really is important that rolling stock and infrastructure R&D be funded together in order to achieve the best outcomes for passengers and freight users.

The rail industry has already shown a willingness to co-fund R&D, as demonstrated by the UK Rail Research and Innovation Network’s £92m partnership between industry and academia, established in 2018. However, the lack of co-funding in CP6 will make it difficult for multidisciplinary companies to make the case for R&D in the UK.

Overall, there is much to be positive about in CP6, with the first rail supply contracts awarded and the industry gearing up for a new funding cycle. Working together with the supply sector, the governments in London, Cardiff and Edinburgh, Network Rail, and the ORR need to ensure smooth and consistent workloads, a visible pipeline of enhancements, and further R&D funding for rolling stock and train operations.

This way, we can ensure rail delivers even greater economic benefits for UK plc, its economy, and connectivity in the years ahead.

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