Posted 26th November 2015 | 5 Comments

Network Rail 'in new tight financial envelope'

NETWORK RAIL chairman Sir Peter Hendy has warned that the company no longer enjoys a 'flexible and accommodating financial regime', and will have to live within its means in future.

He was speaking to Railnews in the wake of publishing his report into the fate of its delayed enhancement projects, which concludes that most can go ahead although some will only be completed in the next Control Period CP6, which will run from 2019 to 2024.

Great Western electrification remains a priority, and should be completed to Cardiff, Bristol and most of the Thames Valley lines by 2019 for a headline cost of no more than £2.8 billion at 2013 prices, the report said. Electrifying the line from Cardiff Central onwards to Swansea is now planned to follow in CP6.

Other schemes will also go ahead, but the Midland Main Line will only be electrified as far as Kettering and Corby by 2019, with Leicester, Derby, Nottingham and Sheffield set to follow by 2023.

The Transpennine route, which like the Midland Main Line was temporarily 'paused' in June, will be electrified by 2022.

Sir Peter said: "The huge programme has also stretched both Network Rail’s internal resources and those of its contractors to the maximum. Signalling, needed in respect of replacement and renewal and as a necessary precursor to electrification, is in short supply. Network Rail and its suppliers need to redouble their efforts to recruit apprentices and engineers to complete these works. In addition, Network Rail needs to employ more senior staff in a very competitive market to effectively deliver works paid for by public funds."

Network Rail is to be allowed to borrow a further £700 million from the Treasury, but must also raise £1.8 billion for itself by selling some property, which may include some retail units and other 'non-core' assets, including depots.

The gap between income and expenditure will also be closed further by postponing some renewals. The report says: "The core business can be managed within the borrowing limit that has been set for CP5. The principal change to achieve this will be a reduction in renewals, which Network Rail considers can be managed safely and does not create a backlog that cannot be caught up in subsequent control periods."

But it goes on to warn that "the buffer between the forecast debt requirement and the borrowing limit is now small. Any further cost increases would need to be funded by additional borrowing, further asset sales or further deferral of renewals".

Sir Peter told Railnews: "It's a very tight financial envelope. Network Rail will have to work hard to achieve it. The company used to enjoy a flexible and accommodating financial regime, and CP5 was costed in that basis."

Questions marks are also being raised over the future role of the rail regulator, because government bodies in the public sector are not normally overseen in this way. However, Sir Peter agreed that the continuing presence of private sector train operators, who have a close commercial relationship with Network Rail, means that NR is not the same as Transport for London, where he worked as Transport Commissioner, reporting to the Mayor, before joining Network Rail this summer.

The transport secretary Patrick McLoughlin told the House of Commons that he was accepting Sir Peter's recommendations, subject to 'a short period of consultation with relevant stakeholders'.

A second report, from economist Dame Collette Bowe, was published at the same time. Her task was to consider the ways rail projects should be planned and costed in the future. Mr McLoughlin said: "I have accepted all of Dame Colette Bowe’s recommendations. My department, together with Network Rail and the Office of Rail and Road, are taking urgent steps to develop and implement a number of actions following her recommendations. These will ensure an improved approach to planning and delivering rail infrastructure enhancements."

Meanwhile, Sir Peter Hendy concluded: "‘The whole issue ever since the start of BR is that there has never been enough public money for the railways."

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • Chris Green, Huddersfield

    As long as Network Rail can deliver the projects that it intends on doing, then that's all that matters.

  • John Gilbert, Cradley, Herefordshire

    It would be wise for the Welsh Government to keep a watchful eye on when the wiring onward from Cardiff to Swansea is to take place. This has always seemed to me to be a poor relation of the main scheme. Of course if Wales is to be given responsibility for transport as I have seen announced for 2017, then perhaps things will be more assured for this end section of the GWML scheme. But watch out Wales. Be on your guard.

  • James palma, London

    Network rail should follow the example of London Underground and develop land and air space above the railway. This would bring in a fortune in revenue and is something Peter Hendy is aware of.

  • Tony Pearce, Reading

    All Firms and Businesses should work in a 'Tight Financial Envelope' otherwise Fraud and Recklessness soon creep in'. The big question is 'Why weren't the Railways working in a 'Tight Financial Envelope' before now - and if not, that is the responsibility of the Government and its Auditors.

  • Chris Jones-Bridger, Buckley Flintshire

    I'm sure there will be much disappointment expressed by the extended deadlines for completing planned electrification work. Having now reset target completion dates NR can ill afford any further slippage. As so much work is now expected to be completed in CP6 it will be interesting to see how much flexibility remains for other desirable enhancement work when this budget settlement is concluded.

    The fallout from delayed electrification is going to be felt through most TOC's & forthcoming franchise renewals. The deadline is already ticking on non disability compliant rolling stock. Expected new or cascaded electric fleets are now delayed. Growing passenger volumes and the demand for improved and new services will put pressure on finite DMU fleets.

    Sir Peter is correct that the supply of public money has never been enough. BR had to live within tight budget settlements. NR is fortunate to live in an era of political consensus where spending on infrastructure is valued. Having weathered the initial financial storm & secured an achievable settlement through CP5 perhaps Sir Peter should train his sights on the cost of enhancement schemes with a view to reigning what by historic comparisons appear excessive overspends. Perhaps then some desirable enhancements being sacrificed can be pursued.