Rail infrastructure investment Contents

Conclusions and Recommendations

The electrification debate

1.We are disappointed that the Secretary of State did not engage more openly with our scrutiny of his decision last year to cancel the three electrification schemes. In seeking a clear understanding of the rationale for the decision, we had to enter into correspondence and then recall him to give oral evidence a second time. The National Audit Office’s recent investigation concluded very clearly that the three electrification schemes on the Midland Mainline, Great Western Mainline and Lakes Line were cancelled in July 2017 because they had become unaffordable. This was a knock-on effect of earlier cost overruns in the CP5 electrification programme, compounded by restrictions on Network Rail’s ability to borrow and the fact that income from asset sales did not materialise as envisaged in Sir Peter Hendy’s 2015 review. Given the decisions to cancel the Midland Mainline and Lakes Line schemes were taken in March 2017, it is regrettable that the announcement was not made until July, by Written Statement on the day the House rose for its summer recess, limiting the opportunity for proper scrutiny and debate. (Paragraph 41)

2.The Secretary of State’s 20 July Written Statement, and the Department’s accompanying press release, focused solely on passenger benefits which were, and to some extent remain, uncertain. We, and the public in the affected regions, were entitled to expect a greater level of candour from the Department. That said, we acknowledge that passengers on the Midland Mainline and Great Western Mainline should see improvements in capacity and journey times from other enhancements in CP5. (Paragraph 42)

3.The Department has not yet made the long-term case for bi-mode operation with a view to conversion to alternative power-sources at some point in the future. This approach remains untested and is therefore uncertain. We fully support the development of battery, hydrogen and other alternative fuel sources for train traction. We recommend the Department vigorously encourage and support the testing of emerging train traction technologies on the UK railway. The Department should use innovation funding to do so. It should set out in response to this Report a clear plan to bring these emerging technologies to fruition. (Paragraph 43)

4.While electrification on the scale, and at the pace, envisaged in 2012 has proven unachievable in CP5 for a range of reasons, there is strong evidence that it is the current optimal solution on heavily-used parts of the rail network, balancing passenger benefits with long-term cost-efficiency and environmental sustainability. There is a widespread view in the industry that there remains a strong case for continued electrification of the Midland Mainline and the Committee is aware of a proposal by a leading supplier for a third-party funded scheme, which they describe as “compelling”. (Paragraph 44)

5.We recommend that the Midland Mainline, Great Western Mainline and Lakes Line electrification schemes cancelled in July 2017 be recategorised as pending, and placed in the Rail Network Enhancements Pipeline (RNEP) for further development and design work (the RNEP is discussed in chapter 4). If new battery and hydrogen technology is proven, the Department and Network Rail should make a comparative cost/benefit analysis against any outstanding electrification projects in the pipeline. Electrification should be delivered through a long-term rolling programme, in which the Department, Network Rail and the wider industry learn the lessons of earlier schemes and strive to reduce the costs. The Department and Network Rail should engage with the Railway Industry Association’s Electrification Cost Challenge initiative, and together produce a report on cost-effective electrification within 12 months. The Department and Network Rail must also demonstrate a greater willingness to engage with third-party proposals for alternatively-funded schemes; in particular, the existing third-party Midland Mainline electrification proposal should be fully considered as a direct alternative to the proposed bi-mode solution. (Paragraph 45)

Regional disparities and economic rebalancing

6.There are considerable difficulties in measuring transport infrastructure spending on a regional basis, particularly in relation to capital-intensive, complex networks with long-lived infrastructure assets such as the railways. We accept that capital spending in one part of the network can deliver benefits much further afield. We urge the Government to consider how it can better demonstrate the distribution of benefits. The evidence from regional transport bodies, however, was clear: decision-making processes and systems of scheme appraisal currently work against regions in need of regeneration, and they do not believe they are getting their fair share. If this situation is not more directly addressed, regional economic disparities will increase. (Paragraph 64)

7.Current transport scheme appraisal methods disadvantage regions in need of economic regeneration. This is working against the Government’s intention to rebalance the economy. The current appraisal methods, which heavily weight journey time saved, will always favour London. The consequent transport investment increases economic activity and congestion. This appraisal method does not solve congestion but subsidises it. Appraisal methods should instead weight heavily the regeneration impacts of investment in transport in regions with spare economic capacity. We therefore strongly welcome the Government’s recognition of the issue, and its intention to address it. The Department’s “rebalancing toolkit” guidance is a welcome step in the right direction, but we are not yet confident that it will be sufficient to make a material difference. (Paragraph 65)

8.We welcome the Department’s openness to ideas to improve the rebalancing toolkit. The Government must be more specific about the economic rebalancing effects it intends to achieve and how regions in need of regeneration can prove their cases and secure investment. People in regions like the North East and the South West, which have experienced relative under-investment in recent periods, must have a clear sense of what the Government is trying to achieve and be able to judge its success. We recommend the Department commit to reviewing the effectiveness of the toolkit in achieving the Government’s rebalancing aims; it should undertake and publish every two years analysis of the difference use of the toolkit has made in the Government’s regional transport investment decisions. We recommend that use of the toolkit be mandatory, and that information submitted using the toolkit in support of rebalancing cases for transport schemes be transparent and open to scrutiny. We are concerned that the toolkit’s status as supplementary guidance will limit its effectiveness; we recommend the Department initiate discussions with HM Treasury about how economic rebalancing can be made an intrinsic consideration in transport scheme appraisals, putting it at the heart of investment decisions rather than being merely an add on. (Paragraph 66)

Funding and processes for CP6

9.We support devolution of decision-making from the centre of Network Rail to its route businesses, in conjunction with an enhanced, central, whole-network System Operator function. There are positive signs that it is having beneficial effects. We welcome the Minister’s clear statement that route devolution is not intended to lead to privatisation of route businesses. We are aware of recent plans to more closely integrate Network Rail route businesses with train operating companies, including in proposed public/private partnerships. We are scrutinising this approach as part of our inquiry into the Department’s long-term plan for the current Intercity East Coast franchise. (Paragraph 74)

10.A greater focus on maintenance and renewals in control period 6 is necessary and welcome, following the postponement of works during the current control period. It is vital that the increased volume of renewals is managed effectively from the outset, throughout the period and beyond. The historic stop/go nature of the renewals spending profile is widely acknowledged to be highly problematic for the supply chain, inhibiting confidence to invest in its workforce, skills and innovation. This issue is also critically important in driving increased efficiency in the railway industry, and addressing it should be a key objective of the Government and the regulator. We support the Railway Industry Association’s call for the Department for Transport to bring together all the key stakeholders, including suppliers, Network Rail and the Office of Rail and Road, to evaluate the effects of the current system on the renewals spending profile. This process should identify and implement a mechanism by which investment can be smoothed out from the start of control period 6 in April 2019, throughout the period and beyond. (Paragraph 85)

11.The case for dealing with enhancements outside of the five-yearly control period and periodic review processes is strong. Many enhancements will span several control periods. The 2015 Bowe review and the 2016 Memorandum of Understanding between the Department for Transport and Network Rail, provide a solid foundation for a continuous planning approach with “determine, develop and design” decision gateways before projects move to the delivery and deployment stages. We support the intention behind the Rail Network Enhancements Pipeline, which should ensure the well-documented scoping and planning mistakes made early in the control period 5 enhancements programme are not repeated. It has the potential to repair the Department’s and Network Rail’s damaged reputations across the industry, providing greater certainty about the schemes that will ultimately be delivered. We believe, however, that more transparency about the enhancements pipeline and decision-making processes within the Department is needed, particularly if the potential for a substantial increase in third-party investment is to be realised. (Paragraph 109)

12.The Department will need to take steps to ensure it has the capacity and capability to assume its strengthened role in the new process, which includes determining cost efficiency and value for money. The Minister’s answers did not reassure us that the Department had yet taken these steps. Given the Office of Rail and Road’s broader responsibilities as economic regulator of the railway, we were surprised at how comfortable it appeared about stepping away from this role and the Department’s preparedness to take it on. We recommend the Office of Rail and Road set out in response to this Report the steps it has taken to assure itself that the Department has the capability and capacity to fulfil its responsibilities in relation to determining the cost efficiency and value for money of enhancements. We expect to return to look in more detail at the role of the Office of Rail and Road as the independent rail regulator, in the light of recent changes, later in this Parliament. (Paragraph 110)

13.The Department’s recently published guidance on, and call for, market-led proposals (MLPs) does not specify a list of projects available for third-party investment, or give a sufficiently clear picture of strategic priorities for investment in each region. We are concerned that this lack of specificity, combined with concerns in the sector about the process itself, appears likely to dissuade third-parties from submitting proposals. The Department is relying heavily on market-led proposals to deliver further enhancements of the railway. It does not appear to have a “plan B” should MLPs not materialise as hoped. Our judgement is that there is a substantial risk that the rush to deliver poorly planned and scoped schemes in the current period will be replaced by a different problem—a slowdown or interregnum in new enhancement projects. This would be particularly disadvantageous to regions that have experienced under-investment in recent periods, and work against the Government’s intention to use investment in rail infrastructure to help rebalance the economy. It would also risk further damaging confidence in the supply chain to invest in its workforce, skills and innovation. (Paragraph 111)

14.We recommend the Department for Transport commit to the following actions to mitigate the risk of a severe slowdown in strategically necessary rail enhancements. It should:

15.We welcome the Department’s engagement with third-parties in recent “Rail Investment Opportunity Days”. We hope these were used as an opportunity to address potential investors’ concerns about the MLP guidance and processes, including the approach to “ownership of proposals” and proposed tendering processes. In its response to this Report, the Department should update us on the outcome of these discussions and the steps it intends to take to reassure potential investors, including through changes to its recently published guidance. (Paragraph 113)

Published: 28 June 2018