Rail 838: Is £48bn too good to be true?

When the announcement that the railways would receive £48bn worth of investment in operations, maintenance and renewals in the five year period from April 2019 came through, there was a sense of disbelief on social media. The doubts kept pouring in: Is it for real?  Is it just smoke and mirrors? Where’s the bad news?

Well, yes, it is for real, there is only a bit of smoke and mirrors and there seems, at present to be little bad news. This is a cause of some personal embarrassment. Nigel Harris, my esteemed editor, pays me to write this column to provide insight and background into what is happening to the railways. My speciality is, pace those readers who believe that railways should be viewed in some kind of wondrous state of isolation, the political backdrop to the decisions which emerge from government. I should, therefore, have seen the fact that the railways would receive a huge increase in government grant – from £4bn per year to £7bn – coming. I didn’t. Instead I was, along with virtually all my contacts and sources within the industry, predicting doom and gloom, and the potential for an awful crisis on the railway with postponement of vital maintenance and renewal leading to a decline in performance.

Instead, the headline figure is of a £10bn increase – that’s £2bn per year – from £38bn to £48bn for the five year period. A higher proportion of this will come from the government network grant, as mentioned above, than before, with track access charges and sundry bits of other income making up the rest. Moreover, the £48bn only seems to include enhancements – improvements to you and me – carried over from the present Control Period 5 estimated at around £5bn with the suggestion from government that there will be more money available for other projects in Control Period 6.

It is impossible to exaggerate the generosity of this settlement especially given that we are still in a period of austerity. In the first control period two decades ago, Railtrack proudly boasted that it would spend £5bn on improving the network and that was doubled for CP2. It went up again by £5bn for the third period, which meant that the money available was around a third of the projected sum for CP6. Of course, the network was not as crowded as today and inflation has to be taken into account, but this is still a remarkable turnaround.

There are still a few concerns. Very little preparation work, for example, is being carried out on new projects that need to be shovel-ready by 2019 if they are to have any chance of being started in CP6. There is, too, the regulatory process to go through, involving the Office of Road and Rail, which has to sanction the investment programme.

But these are quibbles. There is no doubt that this unexpectedly generous settlement is good news for the railway and, indeed, passengers. However, for the railways managers to be able to relax, it is necessary to try to work out precisely what is going on in government circles that led to this decision. Having spoken to various people as bemused as I was, various possible reasons emerged. The first was Brexit. Now, regular readers will know that I consider Brexit as the worst political decision made in my lifetime, on a par with foreign incursions such as Suez and Iraq. Every day we see the damaging effect as talented people leave the country, hospitals struggle for staff, fruit gets left unpicked and City firms prepare to shift to Paris or Frankfurt.

However, it is just possible that Brexit may have prompted the Chancellor, Philip Hammond, who is a fervent Remainer, to push for investment in the railways.  There are a lot of advantages in doing so. Most of the investment which goes on the railways is spent in the domestic market, stimulating job creation in the private sector. Moreover, improving the infrastructure is a key part of the government’s industrial strategy. And remember, Hammond was, reluctantly, transport secretary in the early days of the coalition and although his tenure passed uneventfully leaving the impression that he was not very interested in the railways, it may be that some of the knowledge of the industry that he gleaned at the time actually made an impression.

There is another political aspect in relation to Brexit. The generous settlement is certainly a triumph for Chris Grayling, the transport secretary, and one of the few strong Brexiteers in the government, other than the trio leading the charge, Boris Johnson, Liam Fox and David Davis. Hammond, perhaps prompted by Theresa May – though I have never heard her say anything at all on the railways – may have thought it politically astute, especially given he is under pressure from the extreme Brexiteers, to win himself an ally on the Brexit side. Never, ever, underestimate the importance of personalities in politics.

More rationally, there may be another reason behind the settlement. The strong warnings from the industry that a failure to make up the cutbacks in maintenance and, particularly, renewals would be disastrous may well have sunk in. The predictions were indeed worrying. Not only would there have been widespread temporary speed restrictions which would have impacted on performance but of far greater concern was the underlying suggestion, barely articulated but widely recognised by railway managers, that a Hatfield type disaster might have occurred.

Possibly the most remarkable aspect of this settlement is that the fears that spending on HS2 would leech money out of the existing network seem, at least for the moment, to be allayed. Cynics might suggest that the settlement may in fact presage a future announcement that HS2 has been cancelled. I doubt it, though it is not impossible that there may be a slowdown in letting HS2 contracts. It is, in the Tory heartlands, a deeply unpopular project, and given the uncertainties within the Conservative party with Theresa May hanging on by her fingertips (Mystic Wolmar reckons there will be a new leader by Easter, but he is often wrong), it is quite possible there may be a new leader – indeed Hammond – who is far less supportive of the project.

Whatever, the politics, as mentioned above, this announcement, technically known as Statement of Funds Available, will have to be ratified by the Office of Road and Rail. Essentially, the idea is that the ORR sifts through the proposed work on all aspects of the railway – Operations, Maintenance and Renewals – and judges whether the money is sufficient to pay for them.

Frankly, this has become a ridiculous tick boxing exercise that points to a reappraisal of the need for the ORR to spend millions of pounds second guessing what Network Rail is planning to do. Look how badly the ORR got it wrong last time. Instead of a 5 per cent reduction in costs, there was an increase of 13 per cent, which is one of the reasons why the railways face a crisis. Indeed, if one was being churlish, one could ask how much of this £48bn will be wasted on Network Rail’s inefficiency. It seems clear that the whole mechanism through which ORR negotiates with the Government and Network Rail over the investment plans is a waste of time. The ORR, as demonstrated so clearly by its failure for CP5, has no sanction for Network Rail now that it is a government body. Fines are useless and while it might be amusing to line up Network Rail’s directors for a bit of corporate corporal punishment, it would do little to improve the lot of passengers.

The key is for Network Rail to be efficient, and that can only be achieved through strong management working through the correct structure. So here is a new question to add to my hardy perennial of ‘What are franchises for?’: What is the purpose of the ORR?




Railtrack revisited


The death of Steve Marshall, the former chief executive of Railtrack, an unassuming and extremely pleasant man, along with the government announcement on rail investment, prompted me to look at the archives (all my Rail columns since issue 383, a total of more than 450 are available on my website) around the time of the demise of Railtrack.

I remember bumping into Steve in the spring of 2001 at the height of the crisis over Railtrack. He had just sanctioned a payment of a dividend to Railtrack shareholders despite the fact that in the aftermath of the chaos caused by the Hatfield train crash, the company had lost £534m that year. I said to him at the time that he had signed the company’s death warrant but he insisted that the shareholders had to be rewarded in order to stay on board. I replied that it was the government he had to watch out for, not the shareholders, and so it proved when a few months later when Stephen Byers, the transport secretary, killed Railtrack by forcing it into administration and Marshall soon departed. I wrote in Rail 406 dated  4 April 2001 that ‘Railtrack is a paradox: a capitalist company without a definable product. Based on such a false premise, its structure is fundamentally flawed.’  The conclusion says it all: ‘Those who care about the railways must not be timid. They must argue with one voice that Railtrack cannot survive in its present form. The debate should be about what should replace it, not whether the change is necessary.’ In the light of Network Rail’s failings, that debate is still taking place. The industry is no longer short of money, in the way it was then, but it has yet to find a structure to enable it to spend those funds efficiently.

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