With the UK's Strategic Rail Authority being wound up, the government is moving to regain control over railway finances. Murray Hughes reports

THIS MONTH sees the UK Department for Transport assume the functions of the Strategic Rail Authority, whose operations will cease by the end of the year.

The move marks the start of a fresh phase in government-railway relationships in which the state gains direct control over policy and decision-making. SRA activities have been transferred in a three-stage process, with the Finance, Technical & Professional and Customer & Stakeholders functions coming under DfT control on August 21.

While the SRA was a government agency, it served as a buffer between state and railway management, developing policy within government guidelines. Now policy will be handled directly by DfT Rail Group, whose reporting line is directly to the Secretary of State for Transport.

The SRA began its short life in February 2001 following passage of the Transport Act 2000. Its demise came about in the Railways Act 2005, not least because the government was anxious to regain control over the railway industry's profligate spending. Not that this can be easily achieved in the short term, as Network Rail's funding is protected until 2009 under arrangements decreed in previous legislation.

The whole industry is under pressure to cut costs, and some progress is being made. Network Rail Chief Executive John Armitt announced at the end of July that 'more than £100m has been saved in the last year' since the company took track maintenance back in-house (RG 6.04 p345). 'Millions of pounds have been saved through cutting out the middle men in supply chains and reducing corporate costs', the company added.

This is a fraction of the amount the government is seeking to save - taxpayer support to the railway in 2005-06 will total £3·36bn, excluding Network Rail borrowing that totals more than £3bn. The figure for state support will rise to an astonishing £4·89bn in 2006-07, dropping slightly in the following years to £4·58bn in 2008-09 when the current regulatory Control Period ends.

A Control Period is the five-year span for which the Office of Rail Regulation determines Network Rail's income from track access charges. CP1 began in April 1996, and the current CP3 covers April 2004 to March 2009. Before a CP comes into force, ORR carries out a Periodic Review of Access Charges, the next being due in 2008. Consultation on this has already begun, and the process will culminate in ORR setting Network Rail's access charges from April 2009 to 2014.

High Level Output Specification

The 2008 Review will be the first under the Railways Act 2005, which requires substantial changes in the way that access charges are determined.

The key element is that the government must provide a statement of required outputs and the amount of funding that is available. This document, known as the High Level Output Specification, is to be published by DfT Rail in the first half of 2007; a similar document covering Scotland will be issued by the Scottish Executive.

Once the HLOS is published, ORR will consider and report on the implications for Network Rail and announce how much funding is available, so providing NR with key inputs for its planning process. In response, NR will publish a cost submission to be reviewed by ORR, which in turn will produce draft and final conclusions that determine the charges.

One of ORR's principal tasks will be to estimate the cost of meeting the HLOS requirements. Should available funding fall short, ORR must determine 'what part of the outputs should be achieved'. It is this which is causing concern throughout the industry as it suggests that closures and service cutbacks could return to the agenda.

According to Dr Mike Mitchell, DfT's Director General, Rail, drawing up the HLOS will be a 'key task' for the months ahead as it 'will clearly set out the government's objectives for rail'. Mitchell sees it as the main planning tool for the industry for the short, medium and long term.

Feeding into the process of setting track access fees are Route Utilisation Strategies, determining service levels and timetabling constraints to ensure that effective use is made of line and route capacity. Previously drawn up by SRA, under the Railways Act 2005 these become the responsibility of Network Rail, which must also produce a Freight Utilisation Strategy.

Franchise specifications and the reletting process, also previously handled by SRA, are now dealt with by DfT Rail, except for the ScotRail franchise which is the responsibility of the Scottish Executive.

Another significant change triggered by the Act is that ORR gains control of safety regulation from the Health & Safety Executive, a move now expected to be complete in early 2006.

Rising traffic

While the government is applying heavy pressure across the industry to make savings, the scope to do so by cutting services is limited as both passenger and freight traffic are on a rising trend.

Total travel on the 16652 km network in 2004-05 reached a fresh post-1946 record of 42·4 billion passenger-km, up by 3·5% over 2003-04. Performance in terms of timekeeping is better too, with all but four Train Operating Companies showing improvements when measured on the basis of a moving annual average. Early this year performance was at levels not seen since May 2000, against which should be set the fact that in the intervening period many timings have been eased with the insertion of ample recovery time.

For the first time in six years freight trains carried more than 100 million tonnes in 2004-05, with tonne-km up no less than 9·5% at 20·7 billion. Much of the increase was attributable to rising demand for coal, driven by power generation companies switching back from gas as prices climbed. But domestic intermodal, oil products and other categories of freight also showed gains, prompting English Welsh & Scottish Railway Chief Executive Keith Heller to enthuse about 'a record-breaking year for rail freight in Britain'. Rail's share of the rail/heavy goods vehicle market is growing too, with DfT statistics published on July 28 showing that, measured in net tonne-km, rail's share had risen to 11·7% in 2004.

Both freight and passenger businesses expect growth to continue. A study commissioned by the Association of Train Operating Companies and published this summer predicted that there is scope to grow the passenger business by 28% in the next 10 years - provided that capacity constraints can be overcome. The study envisages that demand in 2024 will be 60% higher than it is today, so that 'it seems inevitable that major capital works will be required'.

Projects on hold

Strong demand means it should be easier to make the case for investing in projects to improve or expand the network. But the government, concerned by the massive cost escalation on schemes such as the West Coast Main Line upgrade, which - despite a considerable cut in specification - is finally coming in at around £7·7bn, remains understandably reluctant to sanction new schemes.

The problem was highlighted by Graham Dalton, the new Director of Projects at DfT Rail, at a seminar on engineering costs held in June. He observed that on major rail projects today 'only about 50% of costs go into construction sites and things like contractors and facilities - track, electrification and the like'. The rest goes on 'programme and project management, compensation, risk money and contingency money'. His message to the industry was that 'the cost of rail must reduce - there is no choice about this.'

One area where high costs have generated major concern is resignalling. So serious was this that many projects were postponed, and ORR decided to undertake a special review. This is being carried out in two stages, with the first report expected shortly.

Network Rail has grappled with the issue and is determined to rein in resignalling costs. It has already taken signalling design work back in-house and is now more confident that projects will hit their cost targets, with around £325m to be spent this year on resignalling.

Siemens took a £50m contract for resignalling the Portsmouth area in May, while in July Atkins, Birse and Amey were awarded contracts worth £60m to resignal and carry out related works on 35 km in the Port Talbot area in South Wales. Next in line are projects to resignal Coventry and Basingstoke, which covers 80 route-km and is costed at £128m.

Rolling stock order hiatus

Last month saw the last MkI EMU with slam doors run on the Southern franchise, with a fleet of 700 Electrostar vehicles supplied by Bombardier now working all Southern services between London and South Coast destinations. South West Trains has already eliminated MkIs from its main line fleet, leaving the last few slam-door trains operational on the South Eastern Trains franchise serving Kent; these too are expected to be withdrawn by October.

No less than £1·9bn was invested in rolling stock in 2004-05, much of it accounted for by the Electrostar fleet and large numbers of Siemens Desiro EMUs for South West Trains, Central Trains and Silverlink. In March the average age of vehicles in the UK passenger fleet was 14·7 years, six years lower than in December 2000.

The next major fleet to be delivered will be the TransPennine Express DMUs (p568), after which there will be a hiatus in deliveries until the 28 Hitachi six-car units for domestic services on the Channel Tunnel Rail Link arrive. The £250m contract provides for a pre-production set to be delivered in mid-2007, with the main build following to permit the launch of services in 2009.

Beyond that lies replacement of the 30-year old diesel High Speed Train fleet which still forms the mainstay of services operated by First Great Western from London Paddington to Bristol, South Wales and the West Country. Other HSTs are leased by Midland Main Line and GNER for its Anglo-Scottish services that run beyond Edinburgh.

The two main HST operators have meanwhile embarked on a further round of life extension designed to keep the trains in front-line service for at least another seven or eight years, including testing of two types of replacement engine: an MTU 16V 4000 R41 and an updated version of the VP185 from MAN B&W.

Debate about a replacement HST2 train has occupied rolling stock specialists for some time, and DfT has now announced that it will take the lead in the development and procurement of the HST2 fleet which would enter service in 2012 at the earliest if invitations to tender are called early next year. The project is seen as 'a key part of setting the long-term strategy for the industry', according to Secretary of State for Transport Alistair Darling.

DfT will need its own experts to develop this strategy, but it has not found it easy to fill the post of Director, Technical & Professional. From this and related appointments it is clear that the government's wish to exert control over the industry extends deep into technical policy.

  • CAPTION: Freight traffic on the UK rail network is booming, with 100 million tonnes carried in 2004-05. Tonne-km were 9·5% higher than a year earlier at 20·7 billion. An EWS Class 92 heads an intemodal service to Bari through Bromley en route to the Channel Tunnel
  • CAPTION: Record numbers of passengers were carried in 2004-05, with traffic reaching 42·4 billion passenger-km. Newly-delivered rolling stock includes four Class 222 trainsets run by Hull Trains, the UK's only open-access passenger operator
  • CAPTION: To reduce operating costs and avoid the need for extensive upgrading to accommodate new rolling stock, South West Trains has proposed its 8·5 km Lymington branch as a Community Railway, worked by two 'heritage' three-car MkI EMUs. 3-CIG 1498 Farringford crosses the Lymington River with the 13.44 from Lymington Pier to Brockenhurst on July 9

A potent symbol of Britain's disconnected railway.

Intended to run Midland Main Line services between London St Pancras and Leeds, a fleet of seven nine-car Meridian diesel trainsets worth around £77m has languished unused since the first was delivered by Bombardier in July 2004 because SRA decided, after the order had been placed, that the new service was not justified. One set has carried fare-paying passengers between Nottingham (above) and London St Pancras, but the fleet's future remains uncertain. Virgin CrossCountry is among other operators expressing interest in leasing the trains, but it has been unable to make the business case. Photo: Brian Morrison

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