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Recipe for rail: More money, less performance

Network operator wants extra £10bn but cuts target for reducing delays

Michael Harrison
Tuesday 01 April 2003 00:00 BST
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The operator of Britain's railways is seeking an extra £10bn to run the network at the same time as lowering its targets for improving train reliability and punctuality.

Network Rail, the not-for-profit organisation that replaced Railtrack last year, said yesterday it would cost £27.8bn to operate, maintain and renew the railways in the five-year period up to 2006, compared with the £17.2bn the Rail Regulator allowed at the last review.

Expenditure is planned to rise from £4.9bn in the financial year just ending to £6bn in 2003-04 and £6.5bn by 2005-06 – some £3bn a year more than was being spent in Railtrack's days.

At the same time, Network Rail has slashed its targets for improving reliability and now expects it to take until 2006 to cut train delays to 11 million minutes a year – the goal it had set itself for 2002-03.

The organisation has also imposed much less stringent targets for cutting the number of temporary speed restrictions on the network. The aim is to get them down from just under 600 now to about 400 by 2005-06 – broadly the level they were at before the Hatfield disaster in October 2000 caused a meltdown in the network.

Only on broken rails is Network Rail's performance ahead of target, though even here it expects progress to slow markedly between 2004 and 2006.

Ian McAllister, the chairman of Network Rail, blamed the sharp rise in expenditure on the "legacy of underfunding" it had inherited. The "patch and repair" approach of the past had led to a backlog building up of 4,000 miles of track waiting to be replaced and this meant the railways were now facing a "bow wave" in renewal expenditure.

There is no doubt that investment in the railways has failed to keep pace with the growth in traffic since privatisation. Between 1996 and 2002, demand grew by 30 per cent and is expected to rise by a further third over the next decade from 39 billion passenger kilometres a year now to 52 billion passenger kilometres. But it is only now that the budget for renewal of the network is beginning to rise in tandem. If Network Rail gets its way then expenditure on renewals, leaving aside the West Coast Main Line, will rise from £1.7bn this year to £3bn in 2005-06.

The man who must decide how much money to allow Network Rail is Tom Winsor, the Rail Regulator. The final outcome of his review, setting the level of access charges which train operators must pay, will be announced in December. Cynics say that now Network Rail is effectively controlled by the Government, which guarantees its £21bn in loans, the outcome of the regulatory review will be academic because if Mr Winsor imposes too harsh a settlement, then the company will simply go back to the taxpayer for more money.

Network Rail does not go into the regulatory review in the best of shape. Its targets of reducing train delays by 21 per cent over the next three years looks impressive but only because it had such a disastrous time in 2002-03 when delay minutes attributable to Network Rail shot up by 6 per cent to 14.27 million.

John Armitt, Network Rail's chief executive, says: "The network was doing well until last September and then we were blow apart by a series of very bad weather incidents and if you have a very fragile infrastructure it is not going to stand up well to bad weather."

As to the watering down of performance targets, Mr Armitt says: "I think that what we have now is a more realistic assessment."

Mr Armitt reckons that by 2006, Network Rail can make £1bn of efficiency savings – equivalent to a 20 per cent reduction in its current costs. He will not be drawn on what this will mean for the organisation's 14,000 strong workforce but clearly there will be job cuts. Leaving aside Network Rail's 7,000 signalmen, there could be perhaps 1,400 staff reductions.

The biggest cost savings will come from the renewals budget where Network Rail believes it can cut costs by up to £500m a year. One way it aims to achieve this is through much better management of "possession" of the network. If Network Rail takes possession of part of the track without notifying the train operator in advance, it must pay 100 per cent compensation for loss of revenue. If the possession is planned then the compensation falls to 40 per cent.

Network Rail also intends to make inroads into its £1bn-a-year maintenance budget by taking three of the 20 contracts in-house to see how much more cheaply and efficiently the work can be done.

The sharp rise in Network Rail's budget came as a jolt yesterday to train operators but most assume it will be taxpayers rather than passengers who end up footing the bill. Despite the adoption of more modest performance targets, there also appears to be continuing support for Mr Armitt and his team. The chief executive of one of the country's biggest train operators said: "We have had full and frank discussions with Network Rail and although it is going to take longer than we would like to bring the network up to scratch we still have faith in them. Speed restrictions and delay minutes are the things we are concerned about because that is what affects passengers. It is disappointing that the targets have been moved but we have certainly seen a greater commitment to resolving the problems."

Railtrack's big problem, so the Government constantly told us, was being answerable to shareholders and not passengers. Mr Armitt does not have any shareholders to keep happy but he knows the travelling public will prove an equally hard taskmaster. "This is not going to be a quick fix but at the end of the day, yes, we must be judged on performance."

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