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Network Rail says it needs £5bn more

04 Dec 2007

IN ITS Strategic Business Plan published on November 1, Network Rail details the funding it requires to operate, maintain, renew and enhance the UK's national rail infrastructure over the five years commencing April 1 2009. This suggests that there will be a shortfall of £5bn in the public subsidy that the UK and Scottish governments said in July they were willing to provide during Control Period 4. The principal reason is that projected 'efficiency gains' are rejected by NR as unattainable.

The SBP is part of a lengthy process laid down in the Railways Act 2005 which effectively started in July when each government produced a High Level Output Specification spelling what they expect the national railway to deliver. They also issued Statements of Funds Available to support the rail industry during CP4.

Broadly, the SoFAs provide £4bn of public subsidy for each of the five years. There are also annual passenger revenue forecasts that ramp up from £6·6bn in 2009-10 to £9bn by 2013-14. These were based on an assumption that passenger-km would be 22% higher in 2013-14 than in 2006-07, and that fares will increase by 3% to 4% a year ahead of inflation.

In 2006-07, the national rail subsidy was a record £6·3bn, having increased fivefold since 2000-01. Nearly half of this – close to £3bn – was paid directly to NR, providing 55% of the infrastructure company's total income. Another £2bn was paid to the franchised passenger operators, who in turn paid £1·7bn in fixed and variable charges to NR. However, three operators received no subsidy and actually paid £42m in premiums back to the government. Freight operators paid NR £90m in access charges, and benefited from subsidies worth £30m.

The Office of Rail Regulation is now analysing the SBP to see whether it would actually deliver the outputs specified at the level of public subsidy proposed in the SoFAs. At a briefing on November 15, ORR Chief Executive Bill Emery declined to comment on the £5bn funding gap identified by our newsletter Rail Business Intelligence, saying that it was 'early days yet'. However, he did confirm that ORR was expecting to publish its 'initial match assessment on whether the HLOSs can be delivered with the public financial support set out in the SoFAs' on December 20, when letters will be sent to the UK Transport Secretary and Scottish ministers.

Beyond that, ORR's stated position is that the assessment process 'will run until June 2008 when we publish our draft determinations for CP4'. During this period, a more detailed assessment of the SBP will be issued by ORR in February, and in the light of its conclusions NR will update its plans in April.

Asked what would happen if there was still a substantial funding gap, Emery replied diplomatically 'if we did conclude that there was a serious risk of a mismatch then we would draw that matter to the governments' attention'.