House of Commons - Investing in the railway

Investing in the railway - Transport Contents

3 Planning for rail investment

11. Funding for railway infrastructure is allocated on a five-yearly basis following a review—in this case Periodic Review 2013 (PR13)—by the Office of Rail Regulation of the outcomes Network Rail should deliver, and how much funding it requires to deliver these outcomes. In Control Period 5 (CP5) the £38 billion allocated to Network Rail has been divided between capital expenditure projects (£13 billion), replacing and renewing older parts of the network (£12 billion) and day-to-day maintenance and operating costs (£13 billion).[34]

12. The process for allocating investment is by necessity complex, reflecting the separate responsibilities of the Government, Network Rail and the ORR, and the planning work undertaken by the rail industry. The ORR told us that while it provided advice, it was for "the Secretary of State to make a judgement on which projects go ahead".[35] This judgement occurred after "an extensive period of industry and stakeholder consultation and detailed scrutiny and analysis".[36] Clare Moriarty, Director General, Department for Transport, told us that where the Department had in the past had a tendency to "do things and then hand them over as a finished product", it now believed that its work was improved by input from the train and freight operators and other stakeholders.[37] Paul Plummer, Group Strategy Director at Network Rail, told us that the company had worked hard to ensure that the investment plan for CP5 was "much better owned, much more detailed and supported" by stakeholders, than in previous years.[38] An example of the new collaboration in the industry is the Rail Delivery Group (RDG), which was established in 2011, following a recommendation by Sir Roy McNulty in his report, Realising the potential of GB Rail.[39] The RDG brings together Network Rail, the train operating companies and the freight operating companies, to produce plans and strategies "for the coherent management of the rail industry".[40] Rail North, the collection of local authorities that will be managing the Northern and TransPennine Express franchises, cautioned, however, that the Rail Delivery Group was "not accountable to the public".[41]

13. There was a broadly positive response to the planning process for CP5. Richard Price, Chief Executive of the ORR, told us that "by and large, it is a pretty inclusive programme".[42] The ORR recognised, however, that improvements could be made for the next control period—CP6, running between 2019 and 2024—by drawing in the views of passengers and freight customers at an earlier stage.[43] In particular, the ORR will change how it engages with the freight industry, having accepted that PR13 "could have been conducted better as far as the freight issues were concerned".[44] This reflected the serious concerns we received about the setting of freight access charges for CP5. Witnesses described the ORR's original PR13 proposal to increase some freight access charges by "well over 100%" as "very surprising", and added that the industry would not have been able to sustain the increases.[45] Maggie Simpson, Executive Director of the Rail Freight Group, spoke of the "trench warfare" the industry had to engage with to change the minds of the ORR, describing how they "begged, pleaded and wrote letters" until "sense prevailed".[46]

14. The allocation of funding is for a five year period, which the ORR told us reflected a "general view" that five years was the right length of time for committing the funding for the specific projects that made up the overall investment programme.[47] Our witnesses generally agreed with this, but called for Network Rail and the Department to publish its longer-term priorities for funding. At present, the Institution of Engineering and Technology warned, the plan for CP5 aimed only "to deliver short-term results without addressing long-term integration and investment".[48] Isabel Dedring, the Deputy Mayor (Transport) of London, called for "much greater clarity" beyond the immediate control period, adding:

Ms Dedring told us that she understood there to be a plan to take the rail network to 2043, but that it was not published, and as a result, local authorities and other stakeholders "have no idea what is on the list and how it is prioritised".[50] She added that the lack of transparency from Network Rail's prioritisation process had resulted in a "crazy" process, which wasted the time of all involved, and prompted attempts to secure political influence over the process, to decide which project secured investment.[51] Tracey Lee, representing the Peninsula Rail Task Force (representing local authorities, local enterprise partnerships in Cornwall, Devon and Somerset, and the University of Plymouth) agreed, and called for a longer-term plan which would clarify how the control period investment would fit together over a longer period of time.[52] Mark Pendlington, Chairman of New Anglia Local Enterprise Partnership, added that a long-term strategy, backed by investment, would be welcomed by passengers, who would understand that it would take several years to implement, if it was well-communicated.[53] The freight operating companies shared similar concerns. John Smith, Managing Director of GB Railfreight, told us that investment in freight infrastructure had to be carried out "on a very piecemeal basis", because of the control period funding process.[54] As a result, he cautioned, there was no confidence that "someone has a high-level view of what it will look like when it is finished in CP6 or whenever it may be".[55]

15. We heard evidence calling for this long-term plan to improve disability access to the rail network. Transport for All argued that while achieving full accessibility would take years, announcing such a plan would send out "a strong message of commitment to full equality".[56] London TravelWatch has called for accessibility to be the biggest priority for CP6.[57]

16. Witnesses called for this long-term plan to consider the railway network as a whole, rather than looking at individual business cases in isolation. Tracey Lee said that the current system meant that local authorities "all put our cases to Government and it feels a bit like, 'Pick me, pick me.'"[58] Mark Pendlington called for a "strategic plan", stating that no rail line should fail to receive any line speed improvements or major capacity increases in a twenty-year period, as had happened with the Great Eastern Main Line.[59]

17. We heard that such planning did take place inside Network Rail, and on occasion has been published. The Rolling Stock Strategy, developed by the rolling stock operating companies with Network Rail, the Department and the train operating companies does look forward to 2043.[60] The route studies and market studies also look for 2043, as part of Network Rail's Long-Term Planning Process, and seek to forecast and respond to passenger growth (although the quality of these passenger forecast numbers were questioned by witnesses: Tracey Lee told us that Network Rail's forecasting of passenger numbers "left a lot to be desired", with actual passenger numbers exceeding all forecasts.[61]) In evidence to us Network Rail and the Department set out a picture of the railway in 2044 where passengers will have access to more real-time information about the services, on a network that has been be electrified to a greater extent, and where the "Victorian" way trains are controlled has been overhauled.[62] Roger Jones, Deputy Director, Rail Network Outcomes, Department for Transport, spoke of this railway as a "dynamic" network, with growth where it is "sensible and cost-effective", but also allows for decline, and the closure of stations where "markets have effectively moved on […] where it is no longer appropriate to have a station".[63]

18. The existence of this long-term planning did bring into question the division of Network Rail's work into five year "control periods". Paul Plummer suggested that the industry could "get a little hung up on control periods", and noted that a number of projects are intended to span CP4 and CP5.[64] Roger Jones confirmed this, and stated that it had been "quite deliberately" planned.[65] Two of these projects—Crossrail and Thameslink—account for nearly a quarter of the funding allocated for enhancements in CP5.[66]Mr Plummer and Mr Jones described the funding for some projects as "a continuous process".[67]

19. With the exception of the confusion and concerns over freight access charges, witnesses were broadly positive about the Periodic Review 2013 process. It is concerning, however, that witnesses representing key stakeholders for the rail industry feel that there is no clear long-term plan for the railway. We call on Network Rail to publish a vision for the railway up to 2043, with a breakdown of the work expected to be carried out in each Control Period. The plan should set out confirmed objectives and plans for the next five years, with provisional plans for each five year period. Consultation and flexibility should be built into this plan, allowing adjustment through the periodic review process, and to respond to changing costs and demand. This flexibility would increase as the plan looks further into the future, but the clarity of objectives—and the advanced planning that should be underway for the next two control periods—will provide much-needed certainty for the rail industry and stakeholders. We believe that publishing this long-term plan is vital for transparency, and will help to secure all-party agreement and effective engagement with the periodic review process.

The Enhancements Cost Adjustment Mechanism

20. Once allocated as part of CP5, rail investment projects have faced a new ORR mechanism designed to reassure the Department of the value for money, scope and delivery of the project—the enhancement cost adjustment mechanism (ECAM).[68] We heard that the ECAM was necessary as several key projects committed to by Ministers for CP5 had been at too early a stage to produce costings when the funding package was determined.[69] This was despite evidence from Network Rail—supported by the ORR—that at the start of CP5 the investment plan was more advanced than the equivalent plan at the start of CP4.[70]Jeremy Long, representing the Rail Delivery Group, told us that the plans for investment in CP5 were "as formed as they could be".[71]

21. The ECAM process appears to have added an element of uncertainty to some rail investment projects—including the electrification of vital lines in the North and North West of England. For the electrification in the North West, Network Rail was asked to submit revised costings in September and November 2014, and then in March 2015.[72] By the end of March the ORR will have received 75% of the whole-life costings for the project, allowing it to consider whether the costs are within the overall "cost envelope" for CP5.[73] At that point, if the costs have risen too high, the ORR told us that it would not be a case of the project not going ahead, but instead a choice for Department whether it happens in CP5 or CP6.[74] Clare Moriarty told us that if the costing of the projects was higher than the budget allocated for CP5 then, "the Department can decide whether to put in more money, or to have a discussion about the phasing and scope of the projects".[75] When asked whether the projects promised for CP5 were going to be delivered, however, Ms Moriarty replied: "absolutely".[76] She argued that flexibility to carry out detailed costing work had been built into the process, because of the length of the control period.[77] Rail North recognised that it was "proper" for the ORR to scrutinise Network Rail's plans to ensure value for money and efficient delivery, but argued that it was "essential" that the process did not "compromise the outputs that the investments produce in the name of efficiency, such as by inappropriate 'de-scoping' of essential enhancements".[78]

22. There have been reports of delays and rising costs for the electrification programme in CP5, raising concerns over the timetable and costing for future electrification projects, including the north trans-Pennine route, and the Midland Main Line. The Rail Minister, Claire Perry, told the House last month that the latest estimate of the cost of the Great Western Main Line to Bristol and Cardiff was £1.7 billion.[79] The original estimate of the cost had been £600 million, rising to £1 billion by 2011.[80] The Permanent Secretary, Philip Rutnam, told us that while the costs had risen from the 2008-09 estimates, he had received "very clear reassurance from Network Rail that it will deliver to time".[81] There have also been media reports that the completion date for trans-Pennine electrification could be delayed by three years, from 2018 to 2021.[82] The Permanent Secretary told us that he did not know if there would be delays but warned that "the challenge is very large".[83] Sheffield City Region noted that while the Department had originally planned for electrification of the Midland Main Line to be delivered during CP5, Network Rail has now stated it will be completed in early CP6.[84]

23. We are concerned that key rail enhancement projects—such as electrification in the North and North West of England—have been announced by Ministers without Network Rail having a clear estimate of what the projects will cost, leading to uncertainty about whether the projects will be delivered on time, or at all. This could be avoided through greater clarity of the status of each announced project. Network Rail should publish a "traffic light" status update for each project committed to in a control period, which would make clear whether, for example a project had been provisionally approved subject to detailed costings, finally approved but without a start date or approved and ready to start. When a project is announced, the Department and Network Rail must be clear and transparent about how it is to be funded, and how advanced it is in costings. This will provide confidence in the delivery of enhancement projects. Electrification of lines in the North West, the North trans-Pennine line, and the Midland Main Line, should not be put at risk due to the projected overspend on the Great Western Main Line. If a rail electrification project is announced for delivery in a set time period, there should be an expectation that it will be delivered on time.

Value for money and priorities

24. The investment planned for CP5 cannot, we heard "do everything". Roger Jones, Deputy Director, Rail Network Outcomes, at the Department for Transport, emphasised the limits on both amount the Government had to invest and the resources Network Rail (and its suppliers) had to carry out the improvement work.[85] In making the choices about which projects to support, Mr Jones argued that all the investment had the aim of developing the economy, reacting to both existing and potential demand.[86] Our evidence questioned this. The Industrial Communities Alliance argued that the process used by the Treasury to allocate rail investment should be revised as it tended to "skew investment towards areas with high population densities and high wages", rather than helping to reinvigorate regional economies.[87] Pteg—the organisation which represents the six Passenger Transport Executives in Tyne and Wear, West Yorkshire, South Yorkshire, Greater Manchester, Merseyside and the West Midlands—agreed, arguing that an "increasing focus on narrow financial criteria for scheme prioritisation", which fail to recognise the wider social and economic benefits of the rail network" was part of the process for allocating investment.[88] Isabel Dedring questioned whether Network Rail considered the Government's wider objectives when prioritising projects. She used the proposed extension of the London Overground to Barking Riverside as an example: the extension, she said, "would trigger 10,000 new homes", but this was not taken into consideration by Network Rail when allocating funds, as house-building "is not a transport objective".[89] Network Rail did not prioritise these schemes, she said, as the outcomes were seen as "peripheral to the main business of transport".[90] Separately from the control period process, principal heads of terms for a loan of £55 million to fund the extension was confirmed in December in the Government's National Infrastructure Plan.[91]

25. It was also not clear if the Department considered alternative methods of achieving an outcome, when assessing bids for rail investment. For example, John Smith, Managing Director of GB Railfreight, told us that reducing the number of off-peak passenger services on the Felixstowe line "would create as much capacity [for freight] as £30 million of infrastructure investment".[92]

26. The Treasury's Alignment (Clear Line of Sight) project has reformed the Government's financial reporting to Parliament.[93] Its stated aim is:

27. The Department for Transport should increase transparency around rail spending and projected outcomes. It should publish the criteria it uses for allocating spending and clarify how it decides which projects will get Government funding. To assess whether the Government has allocated spending appropriately, and to achieve maximum benefits, there must be a transparent way of tracking the investment—and outcomes—in each control period. We recommend:

a) The development of an "outturn statement" for each Control Period making clear work agreed to, work done, work carried over along with financial outturn, and the split of spending between operations and enhancement projects.

b) Funding announcements for Control Periods should differentiate more clearly between spending on operating the network—the running costs without any capacity/infrastructure work—and enhancements.

c) Each spending announcement made by Government, Network Rail or the train operating companies should make it clear where the funding has originated—through the Control Period funding, separate Government funding (e.g. the Local Growth Fund), or private investment from train operating companies or the rolling stock operating companies.

This approach fits with the Treasury's Line of Sight principles. We think that this information could be published by the Department at no, or minimal extra cost, as all this information should be already easily available internally for accounting or management purposes.

34 Office of Rail Regulation, Periodic Review 2013: Final determination of Network Rail's outputs and funding for 2014-19 (October 2014), p 30 Back

35 Q137 Back

36 Office of Rail Regulation (IRW0024) Back

37 Q41 Back

38 Q22 Back

39 Department for Transport and the Office of Rail Regulation, Realising the potential of GB Rail, May 2011 Back

40 Rail Delivery Group (IRW0029) para 1 Back

41 Rail North (IRW0016) para 14 Back

42 Q137 Back

43 Q186 Back

44 Office of Rail Regulation (IRW0068) Back

45 Oral evidence taken on 1 July 2013, HC (2013-14) 266, Q53 Back