UK: Rail companies face tough negotiations on 5-year plan

[John Ashworth]

Rail companies face tough negotiations on five-year spending plan

Network Rail and train operators likely to present cost-saving options in spending plan for 2014-2019

Dan Milmo
The Observer, Sunday 25 September 2011

Network Rail and train operators will outline the funding quandary facing the government this week when they unveil a multibillion-pound five-year plan for the railways.

The owner of the British rail system and its biggest customers will make their pitch for the network's next five-year spending plan, which runs from 2014 to 2019, on Thursday.

Network Rail, led by David Higgins, is spending £30bn in the five years to 2014 as part of a settlement struck during the era of fiscal largesse, but it now faces the toughest funding negotiations since its creation nearly a decade ago.

The transport secretary, Philip Hammond, has served notice on the scale of the government's support for the industry, warning that the £5.2bn invested in rail by the taxpayer in 2009-10 is "unsustainable". The farepayer contributed £6.2bn over the same period and that total will increase rapidly, with the government committed to annual season ticket increases pegged at the rate of retail price index inflation (RPI) plus 3% until 2014.

A rail industry source said the document would present further cost savings to the transport secretary, who can then choose between reinvesting those savings in the network; using them to reduce government subsidy while maintaining the upward fare trajectory; or using them to avoid long-term increases in ticket prices.

Stephen Joseph, chief executive of the Campaign for Better Transport lobby group, said the government had to back further investment in the railways, including the electrification of the Midland main line from Bedford to Sheffield and the reopening of lines axed in the wake of the 1963 Beeching report.

"We need to see continued investment in rail rather than a rowing back," said Joseph, adding that the £1bn savings outlined by a recent government-commissioned report must not be a catalyst for reducing investment.

The document will make assumptions about increases in rail fares between 2014 and 2019. Hammond has expressed hopes that the phenomenon of inflation-busting fare increases will be eliminated by hitting the £1bn savings target outlined in the report by Sir Roy McNulty, former chair of the Civil Aviation Authority. However, that target is not due to be reached until 2019, which implies that fares will continue to rise above RPI until the end of the decade.

The transport department will respond to the industry plan next summer by announcing what it wants from Network Rail between 2014 and 2019. However, it is committed to several large projects over that period, including the £16bn Crossrail programme, electrification of the Great Western line and a revamp of the London Thameslink route.