Rail infrastructure investment Contents

1Background and context

Governance and delivery of rail infrastructure investment

1.The railways are a vital part of our national transport network, and make a very substantial contribution to the economy, recently estimated to be £11.3 billion of direct gross value added (GVA) in 2018, rising to £36 billion including GVA from the supply chain, retail outlets at railway stations and other impacts.1 The rail network is a national asset, predominantly publicly-owned and managed by Network Rail, a public body.

2.Parts of the network are under immense strain. Passenger usage of the railway has more than doubled in the last two decades and the Government supports growth in the rail freight sector, as part of its commitment to reduce carbon emissions.2 Much of the core network dates from the 19th century; a balance needs to be struck between keeping an ageing system going and investment in new infrastructure. We welcome the substantial increased investment in recent years. This must continue, to pay for:

3.The Government, through the Department for Transport (DfT), is responsible for setting the strategic priorities for investment in England and Wales. Every five years, the Secretary of State for Transport sets out a High Level Output Specification (HLOS) and a Statement of Funds Available (SoFA).4 Delivery of investment in infrastructure is generally managed by Network Rail, within five-year rail control periods (CPs), according to published business plans and strategy documents.5 Oversight is provided by the Office of Rail and Road (ORR), the independent regulator, which conducts a complex, eight-stage Periodic Review (PR) process, including consultation with all stakeholders, prior to work beginning in each control period.6

Our inquiry and this Report

4.There were two main drivers for our inquiry: the cancellation last year of railway electrification schemes in the Midlands, south Wales and the Lake District, which led the DfT to adopt a new approach to enhancements;7 and broader concerns expressed by the railway supply chain about “lumpy”, “stop/start” or “boom and bust” investment, particularly in relation to Network Rail’s renewals “workbanks” (planned renewals work, sub-divided into different categories).8 These concerns share a theme: a level of uncertainty about upcoming spending, with potential knock on effects on the wider industry’s confidence to invest in its workforce, skills and innovation.

5.Electrification was a key part of the enhancement element of the 2012 HLOS for CP5 (2014–19), which included a hugely ambitious programme to electrify large swathes of railway.9 There has also been a substantial programme of renewals, plus station rebuilding, and capacity and line speed enhancements. Enhancements formed 33% of planned CP5 spending (compared to 26% in CP4) and, within the enhancement spending, electrification work was 24% in CP5 (compared to 5% in CP4).10 Network Rail has delivered many of these enhancements successfully, on time and on budget. The electrification programme has, however, been beset with problems. The sheer scale of schemes was over-ambitious. This, in addition to inadequate planning and budgeting, particularly in relation to Great Western Mainline electrification, and an unclear definition of responsibilities between the DfT, Network Rail and the ORR meant the programme started very badly, and the whole of CP5 had to be re-programmed. Early work was poorly scoped, costed and managed, resulting in very severe time and cost overruns. The problems coincided with the reclassification of Network Rail from government-owned company to public body. This placed its debt on the Government’s balance sheet and saw HM Treasury place a severe restriction on Network Rail’s ability to borrow. This compounded the problems, as Network Rail was much less able to borrow money to fund the overspend, as it would have done before.

6.Sir Peter Hendy, appointed Chair of Network Rail in July 2015, set out a re-programmed delivery plan, which involved selling Network Rail assets to release funding for investment, rescheduling several enhancement schemes into CP6 (2019–24) and beyond, and postponing £3.4 billion of renewals work into CP6.11 Dame Collette Bowe was commissioned to review the planning of railway enhancement projects, and presented her findings to the Secretary of State on the same day as the Hendy review, in November 2015.12

7.The problems of CP5 accelerated a process of reform within Network Rail. Nicola Shaw’s November 2016 report on the future shape and financing of Network Rail, and Professor Peter Hansford’s June 2017 review of contestability in the UK rail market have driven a “Transformation Plan”.13 This includes devolution of decision-making power from the centre to eight regional “route businesses” and a commitment to become much more open to third-party investment in the railway.14

8.It was not our intention to rake over the problems of CP5, which were comprehensively investigated and reported on in the Hendy and Bowe reviews, but we did want to consider the adequacy of steps taken to prevent the same mistakes being made again, and highlight any potential unforeseen implications. Neither did we seek to, nor could we, duplicate the work of the Shaw and Hansford reviews, but we remained mindful that these reports provide the context in which change is happening.

9.We wanted to explore recent claims about regional disparities in investment, a debate that has been reignited by the cancellation of electrification schemes in the Midlands, south Wales and the North West. We considered this in the context of the Government’s longstanding intention to “rebalance” the economy away from London, exemplified by the “northern powerhouse” and the “midlands engine”.15

10.Our focus was on rail infrastructure investment that has traditionally been managed within the five-yearly regulatory control period process; we therefore did not consider the Government’s plans for HS2, which is subject to Parliamentary scrutiny via the hybrid Bill process,16 or look in detail at the Digital Railway programme, which will deploy modern signalling and train control technology across the network. A Digital Railway strategy (to 2027 and beyond) was published after we had finished taking evidence for this inquiry.17

11.We received 68 written submissions and held five oral evidence sessions, hearing from passenger and freight operators; supply chain companies; regional transport bodies; a range of commentators and experts, including a leading commercial lawyer and the RMT union; and the DfT Minister of State with responsibility for rail and devolution, Jo Johnson MP, and Brian Etheridge, the Department’s Director of Rail Network Services. We also drew on oral evidence from, and correspondence with, the Secretary of State, the Rt Hon. Chris Grayling MP, in relation to his decision to cancel electrification schemes last year.18

12.Terms of reference for the inquiry are available on our website.19 A full list of witnesses is included at the end of this Report. We thank everyone who contributed to our work. We are particularly grateful to Professor Anson Jack of the Birmingham Centre for Rail Research and Education at the University of Birmingham, our Specialist Adviser for the inquiry, whose sage advice and insights were invaluable.

13.Our Report begins by considering the DfT’s approach to electrification, as indicated by its cancellation of schemes in July 2017, and the coherence of its new “bi-mode” diesel/electric approach with the strategic objective to move away from diesel to more long-term cost-effective and cleaner, greener forms of traction.

14.Chapter 3 addresses the related debate about regional disparities in investment, looking at the official data and considering how rail infrastructure investment might more effectively contribute to regeneration and economic rebalancing towards regions outside of London.

15.Finally, in chapter 4, we examine significant changes in the balance of funding between renewals and enhancements in CP6; the apparent historic “lumpiness” of renewals work within CPs; and new processes for the design, development and delivery of enhancement projects, including the recently announced Rail Network Enhancements Pipeline, which will be outside of the regulatory control process from CP6, and recently published guidance on, and call for, “market-led proposals”.20

1 Oxford Economics for the Rail Industry Association (RIA), The economic contribution of UK rail 2018, February 2018

2 For a summary of relevant statistics, see ORR, Rail Statistics Compendium Great Britain: 2016–17 Annual, November 2017; DfT, Rail Freight Strategy, September 2016

3 Network Rail, Briefing Paper SN02129, House of Commons Library, March 2016

5 Network Rail, Briefing Paper SN02129, House of Commons Library, March 2016

6 ORR, Periodic Review 2018 (PR18), accessed 15 May 2018

7 HC Deb, 20 July, col 72WS

8 See, for example, “There is still much more to do: avoiding the boom and bust in CP6”, Rail Technology Magazine, 30 January 2018

14 Network Rail, Delivering for our customers, accessed 18 May 2018

15 HM Government, Northern Powerhouse strategy, November 2016; HM Government, Midlands Engine strategy, March 2017

16 See, for example, UK Parliament, High Speed Rail (West Midlands–Crewe) Bill 2017–19, accessed 15 May 2018

17 Available via Digital Railway Programme, Resources, accessed 24 May 2018

18 Oral evidence taken on 16 October 2017, HC (2017–19) 430, Qq 39-88; Oral evidence taken on 22 January 2018, HC (2017–19) 702; Transport Committee, Cancelled Rail electrification schemes inquiry, accessed 17 May 2018

20 See DfT, Rail Network Enhancements Pipeline A New Approach for Rail Enhancements, March 2018; and DfT, Rail market-led proposals: Guidance and Call for ideas, March 2018

Published: 28 June 2018