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Any rail finance changes must show ‘clear evidence’ of improvements for users – DfT

The DfT has said that changes to the system of charges and financial incentives on the rail network should only be introduced if they can deliver proven benefits.

In his response to the Office of Rail and Road (ORR) initial consultation ahead of the 2018 periodic review, Richard Carter, the DfT’s director of rail strategy and security, said that greater collaboration between the DfT, the ORR and the rail industry is needed to provide “strong incentives” for operators and Network Rail to reduce costs and improve services.

However, he added: “Changes should only be made where they lead to a significantly better outcome for users. We would be concerned at changes which increased complexity, and potentially costs, without clear evidence these would lead to improvements for users and taxpayers.”

Carter also said that “clarity and transparency” is needed about where costs are incurred and how the rail industry is financed.

He said the DfT supports the “full consideration” the ORR is giving to proposals to change to route-based regulation, whilst recognising that it poses “certain challenges”.

Under the ORR’s proposed framework, forecasts of efficient cost, assumed required revenue, asset regulation, charges for access, outputs and management of financial risk will be set separately for each route.

Carter added that the DfT plans to open a consultation later this year on proposals to make open access operators pay a levy to support unprofitable but socially and economically important services, as franchises currently do.

The DfT will co-ordinate the consultation with the ORR’s consultation, and plans to impose the levy on all open access applications granted from Budget 2016.

The ORR raised the idea of the levy in its written evidence to the Transport Select Committee’s inquiry on rail franchising.

Carter also said that the proposed framework should provide more support for private sector investment.

In his keynote speech at the Infrarail conference, Peter Hendy, the chair of Network Rail, said that private sector investment should be used to deliver upgrades such as the digital railway.

In addition, Carter recommended that ORR’s proposed PR18 framework should pay greater attention to issues relating to HS2, as most of the construction work for HS2 phase 1 is due to take place over CP6.

Martin Frobisher, Network Rail’s route managing director for London and the north west, recently told the Transport Select Committee that HS2 works will cause a “difficult period” for the railway network.

However, there are growing concerns that HS2 will fail to meet delivery milestones or be disrupted by UK’s vote to leave the European Union.

Carter also said it should include strategies for encouraging innovation and closing the industry skills gap, and working more closely with partners such as Passenger Focus.

He said the DfT is already consulting with the ORR with a focus on station licensing and access charging.

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