Hammond delivers for rail


The predictions that the Comprehensive Spending Review would be a disaster for the rail industry proved unfounded.  Sure, there was some bad news. Rail fares are to go up by 3 per cent above inflation, rather than 1 per cent, but, presumably as a compromise with the Libdems, this has been postponed for a year, so will not come into effect until January 2012. Most seriously, the Department for Transport itself is being cut back quite sharply, with staff reductions of 20 per cent, which may well have an impact on its ability to deliver investment programmes.

 There is talk of cuts through greater efficiency and a small reduction in Network Rail’s spending of £185m, trivial in the context of its £5bn annual spend, but overall rail has escaped lightly. Crossrail will go ahead, though with some postponement of spending, and Network Rail’s overall investment plan, Control Period 4 in the jargon, will not be reviewed. Other major schemes such as Birmingham New Street, north west (though not definitely Great Western) electrification, Reading station and preliminary work on the high speed line, while there is even good news on the tram front, with support for schemes in Birmingham and Nottingham.

 There is, though, possibly more bad news to come. As I write, in mid November, there are daily rumours about the promised announcement on Thameslink, electrification and the Intercity Express Project, all combined in an amazingly complex set of decisions that, of course, have to be taken by government. The rumours are good, even possibly that the IEP may not be as dead as expected, and so overall the railways have escaped from the spending review process remarkably unscathed.

 There are two reasons why rail has done so well. First, it would have been remarkably difficult to have cut Network Rail’s investment programme substantially. Though it galls me to say it, one of the few – indeed only – benefits of the way the industry was privatised is that investments in the infrastructure are determined through five year programmes – control periods – at the end of a lengthy negotation involving the government, the Office of Rail Regulation and Network Rail. While theoretically the programme of £8bn of enhancements could have been subjected to an interim review which could have resulted in substantial cuts, the process would have taken well into next year by which time we would have been almost half way through Control Period 4 which ends in March 2014. Therefore, it would have been difficult for the government to have made substantial savings which would not have made the disruption worthwhile.

 It was, though, not just the rigidity of the privatised structure that prevented major cuts. It would have been quite possible for the Chancellor to have simply cut Crossrail for which the Department has earmarked £5bn or to have postponed other schemes in the offing. However, what happened was quite the opposite. The Chancellor, George Osborne, reaffirmed the government’s commitment to railway investment, and in particular to the north south High Speed Rail line on which the government will spend £750m between now and the next election. Indeed, Osborne is surprisingly supportive of the need to maintain spending on infrastructure despite the parlous state of the economy.

 Philip Hammond, the transport secretary, is also, looks to be viewing rail investment favourably. This is certainly something of a surprise. In his first press conference, he announced boldly that he would be ending Labour’s ‘war on the motorist’, a non existent battle which seemed to suggest where his interests lay. Indeed, transport ministers tend to fall into either those who favour roads or those who support rail and Hammond had all the signs that he would be unequivocally the motorists’ friend given his Home Counties seat and his populist moves such as abolishing the M4 bus lane, which makes no sense, and cutting back on road safety spending, which will cost lives.

 However, Hammond was rather bounced into the ‘war on the motorist’ line by the Daily Mail’s experienced transport and motoring correspondent Ray Massey who baldly asked him at his inaugural press conference whether he was ending said war and although Hammond has repeated the line in subsequent speeches, his actions do not support the notion that he is merely a cipher for the roads lobby. Indeed, by favouring rail capital investment, numerous road schemes have been scrapped and many more will follow at the local level as both national and local road spending has been reduced. Indeed, Stephen Glaister, the Director of the RAC Foundation for Motoring, is furious about the Spending Review decisions, arguing that the benefits from road schemes greatly outweigh those from rail investment: ‘[Hammond’s] claim that overall transport capital spending will remain flat in cash terms over the next four years masks a drastic 34 per cent cut to the Highways Agency overall budget for new infrastructure’. He blustered that some of the schemes being cut have a benefit to cost ratio of six, whereas the high speed line only scores 2.4.

 So we are in the rather weird situation where an overtly pro motoring transport secretary is disguising the fact that his decisions are actually favouring rail. It is rather like New Labour’s perennial failure to boast about its achievements in social welfare, education and health spending through fear of antagonising middle England voters.

 However, the rail industry cannot rest on its laurels. The fares rises will be damaging and may well reduce long term demand, sending people back into their cars. Moreover, the medium term future is bleak. The preliminary work for the determination of spending in Control Period 5, which starts in 2014, has been postponed until the results of the McNulty enquiry into the efficiency of the rail industry are known. There is a widespread feeling in the rail industry that this will be a very tight settlement with little room for enhancements, especially as that is when serious spending on HS2 will begin. The railways, therefore, will have to prove that the money it is receiving for investment will be well spent. Reform of Network Rail will be essential to ensure that this is the case but that will only be the start of the process. The favourable result in the spending review does not alter the fact that there is going to be upheaval in the rail industry in the next year, with major changes likely to affect all the players.

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