£47.9 billion is a lot of money, by any calculation.
It is also the amount that Network Rail will be allowed to spend in the five years from 1 April 2019 on maintaining and renewing the railway network and completing those enhancements already underway.
In a short Statement Of Funds Available (SOFA), the Department for Transport set out “the direct grant that the Government is making available to Network Rail and the level of expenditure that the Secretary of State currently anticipates this grant will support throughout Control Period 6 (CP6: 1 April 2019 to 31 March 2024)”.
The total is made up of a Network Grant of £34.7 billion, plus Network Rail’s own income from other sources of £13.2 billion. This stems from track access charges, rents and profits from other group activities.
The SOFA amount will be to fund delivery of the work outlined in the High Level Output Specification (HLOS) of 20 July 2017, which the Secretary of State for Transport, Chris Grayling, stated was aimed at ensuring the railway becomes more focused on issues that matter most to its customers.
In former times, Network Rail was able to raise its own funding by issuing bonds under the Multicurrency Note Programme covered by the Financial Indemnity Mechanism (FIM).
That possibility ceased on 1 September 2014 when Network Rail was reclassified as a Central Government Body in the UK National Accounts and Public Sector Finances. As that was after the start of Control Period 5 (1 April 2014 to 31 March 2019), and after Network Rail’s expenditure plans had already been set for that period, this understandably led to some difficulties in planning and cost management.
In contrast, outside of income from Network Rail’s own commercial activities, Control Period 6 will be funded by government. Indeed, the SOFA explicitly states: “The Secretary of State requires that Network Rail will not take loans or issue bonds from Government or any Third Party to fund the HLOS.”
Defining the actual work to be undertaken now passes to the regulator, the office of Rail and Road (ORR), working with Network Rail.
Plans are that, for the first time, funding of maintenance and renewals will be split from enhancements. The former, which will keep the railway running, will be financed by an agreed set figure.
So too will those enhancement projects that will carry over from CP5 to CP6.
New enhancements, on the other hand, will be funded on a case-by-case basis. This will force Network Rail to plan and cost each one properly, something it has been criticised for failing to do for some recent high-profile projects, but it will also give the organisation time to do that planning in a structured way, without the constraints of a formal control-period funding process.
When an enhancement project is fully planned and costed, it will be ‘offered’ to the ORR for funding approval. Such approval is not automatic but, for those projects which government agrees to buy into, additional budgets will be agreed and set.
So if Network Rail wants to, or is asked to, initiate a major project, for example filling in the gaps in Great Western Electrification, building the western link to Heathrow, or improving the TransPennine route, it has to be planned, designed and funded as a stand-alone project.
Network Rail has a pretty good record of sticking to planned costs for individually-budgeted projects, it’s the ones which the previous control period funding system forced to be costed early, when the scheme hadn’t even been fully designed yet, that have given trouble.
Network Rail responded positively to the announcement. “Continued high levels of investment in our railway are essential to create the jobs, housing and economic boost our country needs to prosper,” commented Mark Carne, chief executive. “Today’s announcement shows the Government’s endorsement of this approach.
“We will submit our detailed plans to the regulator, in the next few months, that will help to finalise the railways funding for the five years to 2024 and continue to drive our company’s transformation to better equip it for the demands ahead.”
The rail contractors, speaking through the Railway Industry Association (RIA), were similarly upbeat.
“The commitment to increased funding announced today is recognition of the need to counter the increasing backlog of renewals work,” stated RIA chief executive Darren Caplan. “This settlement will help Network Rail and its supply chain to maintain the UK’s rail system to the greater benefit of the paying passenger, freight companies, UK plc, and represents a good deal for the taxpayer.
“On Network Rail’s major projects, or enhancements, we look forward to hearing what the Government has to say later in the year.”
But what will this expenditure do for passengers and train operators? Paul Plummer, chief executive of the Rail Delivery Group, said: “Sufficient funding of today’s railway is essential to sustaining its reliability and safety so we welcome this important milestone.
“This decision recognises the importance of our railway to the economy and to the communities and customers it serves and it represents an important vote of confidence in the industry’s ability to deliver while providing greater certainty for jobs and investment in the supply chain.”
Attention now turns to the ORR and Network Rail as the two parties discuss the detail that today’s statement is lacking.