The Office of Rail and Road (ORR) has set out its final determination of Network Rail’s £43.1bn plans (£38.5bn in England and Wales, £4.6bn in Scotland) to deliver a safe and customer focussed railway. The plans cover the five years from 1 April 2024, known as Control Period 7 (CP7).
Since the ORR’s draft determination in June, Network Rail has revised its plans, responding positively to ORR’s challenge in a number of areas. This includes Network Rail increasing spending on core railway infrastructure by approximately £600mn to bolster asset sustainability, safety and performance.
ORR’s decisions are set out in its final determination. The key points are:
Train performance
ORR’s final determination sets specific train performance requirements that protect the interests of passengers and freight. The targets are more challenging than originally proposed by Network Rail but are realistic. Meeting these targets will require Network Rail to work with operators to ensure that cancellations are reduced and that punctuality is maintained across Great Britain, even as passenger numbers increase.
ORR recognises the challenges to accurately forecasting train performance at this time and so will reassess passenger train performance targets for England & Wales in advance of year three of CP7. This two year window creates an opportunity for train companies to work with Network Rail to better align planning processes.
Freight growth
ORR has set appropriately challenging targets for what Network Rail delivers for freight operators. Network Rail will be required to reduce freight cancellations from current levels.
ORR has set rail freight growth targets across Great Britain for the first time. Network Rail will need to play its full role in supporting growth of 7.5% in rail freight for England & Wales and 8.7% for Scotland. ORR supports Network Rail’s plans to upgrade its structures to better support freight and it now needs to work with the industry to deliver the conditions for growth.
ORR is also continuing to cap track access charges for freight operators below cost.
Renewing the railway
ORR welcomes Network Rail’s increase in spending on renewing core assets (such as track, structures and earthworks). This addresses our concerns from the draft determination and will bolster asset sustainability, safety and performance. This is particularly important with the challenges presented by climate change.
ORR considers that Network Rail has a suitable framework to understand and manage the change in risk from carrying out fewer renewals and a move to greater maintenance of existing assets.
Managing risks effectively
Significant uncertainty has shaped the development of Network Rail’s plans and our review of them. For example, inflation has increased financial challenges and climate change presents further uncertainty. Effective risk management will therefore be important as will risk funding.
ORR requires Network Rail to maintain sufficient and well managed levels of risk funding. We conclude that Network Rail should retain provisions for risk funding of £1.5bn in England & Wales and £225mn in Scotland.
Delivering value for money
ORR recognises the tight fiscal context in which Network Rail’s plans have been developed. It is therefore vital that Network Rail continues to build on the success of recent efficiency initiatives, to help secure a financially sustainable railway and deliver value for money for passengers, freight and funders of the railway.
ORR has carefully reviewed Network Rail’s efficiency targets for the next five years and, drawing on a range of evidence, found these to be stretching but achievable. This would see Network Rail deliver efficiencies of at least £3.2bn in England & Wales and £0.4bn in Scotland.
Protecting the environment
To support the move towards a low emissions railway, ORR will hold Network Rail to account for delivering a more than 20% reduction in its carbon emissions. ORR has also set a target for Network Rail’s efforts to conserve and enhance biodiversity.
Will Godfrey, Director, Economics, Finance and Markets at ORR said: “I’m pleased to see that Network Rail has responded well to our challenges to its initial plans and the result is more robust and customer focussed plans which we believe will deliver better outcomes for passengers and freight.
“The plans are challenging but achievable. Our five-year funding and regulatory settlement provides stability and a platform for the industry to plan and invest. This is important not just for Network Rail, but also for passenger and freight operators and the supply chain.
“Network Rail must now set out how it will deliver on our final determination.”
Andrew Haines, Network Rail chief executive, said: “The rail sector enjoys an almost unique level of funding certainty and that is a privilege that comes with serious responsibilities. More than £43bn will be spent over the next five years to deliver a safer and better railway for passengers and freight customers. Today’s announcement gives clarity and certainty for the railway and our supply chain partners and will now enable us to continue building on our detailed delivery plans.
“The UK and Scottish Governments’ funding commitment and today’s news is a significant vote of confidence in the industry’s future. The impact of inflation, tight public finances and the need to invest more to manage the impact of more frequent extreme weather on the infrastructure does mean that our funding will need to go further than ever before.
“Throughout CP7 we are committing to delivering extensive investments across the length and breadth of the network. In addition to improvements to safety, we’ll work to boost train performance, usher in new technologies, invest significantly more funds to tackle climate change as well as make £3.6 billion of efficiency savings.”
Following the announcement, Network Rail will now carefully review the detail of the regulator’s determination, continue the planning work to develop its detailed CP7 delivery plan by the end of March 2024.
Scotland’s Minister for Transport Fiona Hyslop said: “I welcome the information published by the rail regulator today on the record investment which will deliver safe and reliable rail infrastructure across Scotland’s network for the next five years.
“It is vital that our commitment to a safe, high performing and efficient railway, delivered cost effectively, is achieved by Network Rail. Scottish Ministers are now far more confident that Network Rail has successfully reduced the increase in its central costs and any cost allocations to Scotland are only for those projects that will benefit Scotland.
“We want to continue to encourage more passengers and freight onto rail. That is why our continued record investment in rail sees us support the publicly owned ScotRail and Caledonian Sleeper; fund major rail projects such the Levenmouth rail line; electrify lines such as Barrhead; and open new stations such as East Linton.”
John Thomas, Rail Partners’ Director of Policy, said: “This periodic review has taken place during a challenging period for the rail industry as it continues to recover from the pandemic and the impacts of industrial action, and with the continuing need to improve the customer experience.
“Against a backdrop of high inflation and significant pressure on the public purse, the £43.1bn made available by government to fund Network Rail’s activity in CP7 is welcome, although inevitably rail will need to make difficult trade-offs, as other sectors have done, to fit the fiscal envelope.
“While ORR has listened to industry concerns in some areas, given the importance of performance to passenger and freight customers, we are disappointed to see that CP7 performance trajectories have been softened from those set out earlier this year in the draft determination.
“The regulator must hold Network Rail to account to ensure the efficient delivery of infrastructure maintenance and renewals, that performance targets are met, and that we rise to the challenge of extreme weather resulting from climate change, which is having an increasing impact on rail infrastructure.
“For freight operators and customers, the regulated freight growth targets in CP7 are a step in the right direction. As an industry it is critical to develop plans on how best to meet these targets, ensuring that we remain on track to decarbonise our logistics supply chains, and hit the longer-term freight growth target that will be announced by government shortly.”
Photo credit: Network Rail
