3 Planning for rail investment |
11. Funding for railway infrastructure is allocated
on a five-yearly basis following a reviewin 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).
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".
This judgement occurred after "an extensive period of industry
and stakeholder consultation and detailed scrutiny and analysis".
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.
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.
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.
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".
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
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
The ORR recognised, however, that improvements could be made for
the next control periodCP6, running between 2019 and 2024by
drawing in the views of passengers and freight customers at an
earlier stage. 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".
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. 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".
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. 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".
Isabel Dedring, the Deputy Mayor (Transport) of London, called
for "much greater clarity" beyond the immediate control
What is the long-term prioritisation that exists
within this vast laundry list? All of us have our own laundry
lists, and if we had more visibility of how that was prioritised,
it would help everybody.
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".
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.
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.
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.
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.
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".
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".
London TravelWatch has called for accessibility to be the biggest
priority for CP6.
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.'"
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.
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.
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.)
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.
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".
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. Roger Jones
confirmed this, and stated that it had been "quite deliberately"
planned. Two of these
projectsCrossrail and Thameslinkaccount for nearly
a quarter of the funding allocated for enhancements in CP5.
Mr Plummer and Mr Jones described the funding for some projects
as "a continuous process".
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 objectivesand the advanced planning
that should be underway for the next two control periodswill
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
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 projectthe
enhancement cost adjustment mechanism (ECAM).
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.
This was despite evidence from Network Railsupported by
the ORRthat at the start of CP5 the investment plan was
more advanced than the equivalent plan at the start of CP4.
Jeremy Long, representing the Rail Delivery Group, told
us that the plans for investment in CP5 were "as formed as
they could be".
21. The ECAM process appears to have added an element
of uncertainty to some rail investment projectsincluding
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.
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.
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. 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".
When asked whether the projects promised for CP5 were going to
be delivered, however, Ms Moriarty replied: "absolutely".
She argued that flexibility to carry out detailed costing work
had been built into the process, because of the length of the
control period. 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".
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.
The original estimate of the cost had been £600 million,
rising to £1 billion by 2011.
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".
There have also been media reports that the completion date for
trans-Pennine electrification could be delayed by three years,
from 2018 to 2021.
The Permanent Secretary told us that he did not know if there
would be delays but warned that "the challenge is very large".
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
23. We are concerned that key rail enhancement
projectssuch as electrification in the North and North
West of Englandhave 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
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.
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.
Ptegthe organisation which represents the six Passenger
Transport Executives in Tyne and Wear, West Yorkshire, South Yorkshire,
Greater Manchester, Merseyside and the West Midlandsagreed,
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.
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".
Network Rail did not prioritise these schemes, she said, as the
outcomes were seen as "peripheral to the main business of
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
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
26. The Treasury's Alignment (Clear Line of Sight)
project has reformed the Government's financial reporting to Parliament.
Its stated aim is:
to create a single, coherent financial regime,
that is effective, efficient and transparent, enhances accountability
to Parliament and the public, and underpins the Government's fiscal
framework, incentivises good value for money and supports delivery
of excellent public services by allowing managers to manage.
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 investmentand outcomesin each control
period. We recommend:
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.
announcements for Control Periods should differentiate more clearly
between spending on operating the networkthe running costs
without any capacity/infrastructure workand enhancements.
spending announcement made by Government, Network Rail or the
train operating companies should make it clear where the funding
has originatedthrough 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
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
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