UK - Network Rail told to do more for less

[John Ashworth]

Network Rail told to do more for less

* Mark Milner
* guardian.co.uk,
* Thursday June 5 2008

Network Rail and its regulator are at loggerheads over proposed caps to the level of funding the company believes it needs to maintain and expand Britain's railways.

The Office of Rail Regulation (ORR) said today it believed Network Rail needed revenues of £26.5bn over the five years from April next year - some £2.6bn less than the company argues it will require.

The regulator has also curbed Network Rail' s spending plans, ruling that its expenditure on maintaining, renewing and enhancing the network should be £27.8bn - around £3.4bn below the company's estimate.

Bill Emery, the chief executive of the ORR, said he believed his organisation's plans would mean better punctuality, improvements in capacity and safety, less disruption and allow the network to cope with rising freight levels. The funding would also allow Network Rail to meet the government's output targets.

"Our draft determinations represent a positive outcome for passengers, freight customers and taxpayer," Emery said. "Network Rail, working with its industry partners, can and should deliver a better outcome at lower cost.

"The outlook for the railway industry is very encouraging. Network Rail must grasp the opportunities it faces."

However, the company took a sharply different view. Its chief executive, Iain Coucher, said: "Demand for more and better rail services continues to grow. It is vitally important that we get the right level of funding to meet passenger and freight user needs, so that we can deliver the railway that this country needs into the next decade.

"On the face of it, the proposed funding settlement is insufficient. I am extremely concerned that the funding settlement outlined today will put our plans to meet rising demand at risk."

The ORR said its estimates took account of rising costs, for example for steel, as well as higher borrowing costs, with Network Rail planning to borrow up to £10bn that would not be supported by government guarantee.

Higher borrowing costs would be offset by the stronger financial discipline that taking on debt not backed by the government would bring.

The regulator said international comparisons suggested that Network Rail had considerable scope for improving efficiency, though it was not asking the not-for-dividend company to make all the savings within the next five years. Nevertheless, its target is still well above what the company itself has said it thinks it can achieve.

Asked if the greater efficiency would mean lower fares, Emery said the "judgment of what goes to the fare payer and what goes to the taxpayer is for the government".

The ORR determination, which will go out to consultation, includes backing spending on big projects such as the £2.7bn Thameslink programme, as well as rebuilding Reading and Birmingham New Street stations. It also includes extending the length of some 500 platforms to allow longer trains.

The proposals include funding of a series of pilot projects as part of a move to a "seven day" railway - industry-speak for increasing the level of services at weekends, especially on long distrance routes.

However, the ORR has rejected a number of schemes, including remodelling at Crewe.

The shadow transport secretary, Theresa Villiers, said she welcomed the tougher approach but added: "There is much more that can and should be done to improve NR's performance and ensure it delivers value for money to passengers.

"However, today's announcement is a step in the right direction to make NR realise that its customers are the travelling public and freight operators and not the fat controller in Whitehall."

The Liberal Democrat transport spokesman, Norman Baker, said: "It is clear that rail travel is increasingly popular. But the government is failing to plan ahead to meet the projected numbers of passengers beyond 2014.

"Unless the government takes action to reverse some of the Beeching cuts [of the 1960s], and introduces a high-speed rail network, we will be facing cattle truck Britain in 10 years' time."