Network Rail (NR) divides its agreed work into five-year control periods. The current period is known as CP5, which runs from April 2014 to March 2019. NR has been told it can spend £38.5 billion on its work during that period, a figure which includes: (1)
- capital expenditure (£13 billion); this covers improvements to lines and stations, and new lines such as Crossrail or Thameslink.
- replacing and renewing older parts of the network (£12 billion)
- day-to-day maintenance and operating costs (£13 billion).
It should be noted that three-fifths of this money comes from the government's Network Grant, whilst most of the rest comes from the passengers and freight operators who use the railways. (2)
Much of the work to keep the existing network running is self-financed by NR itself, using money it receives from the train operators in the form of Track Access Charges; last year NR actually made a profit. However new projects - such as electrification - costs more than NR can afford, and the government loans them the money as part of a Network Grant. As such, this work needs to be agreed with the government. In 2013-14, the Network Grant was £3.7 billion (1).
The program to electrify these lines came not from the government, but from Network Rail and the train operating companies, who persuaded the Department for Transport and the Treasury that it was the right thing to do.
What went wrong:
The first stage of the work on the Great Western Main Line (GWML) has turned out to be much more expensive than planned, and is behind schedule. Rather than progress work on the other schemes, the pause may allow NR to work out what went wrong and apply lessons learned to the other schemes. Alternatively, such recalculations might push the cost-benefit ratio to such a level that the schemes are not worth continuing.
Worse is the fact that NR is also failing on their bread-and-butter work: the track renewals and resignalling schemes that are done all the time as systems age. According to Rail magazine, in the first year of CP5, they have overspent by £230 million and are 77% behind schedule on overhead line renewals (that is replacing exiting lines, not creating new ones), 63% behind in signalling renewals, and 7% in track renewals. These are no-brainer schemes that they have wide experience of and should be getting correct.
It is clear that there is little chance of getting the other new work done within NR's £38.5 billion budget over the five years, and therefore a pause, whilst unfortunate, is probably wise.
Whose fault is it?
Network Rail's. They decide on the work that needs to be done, and produce a budget for that work that gets approval from the government. They have singularly failed to meet the monetary or temporal budgets they set, even if those were somewhat woolly in the first place (as mentioned by the Transport Select Committee in January (2) ).
Network Rail have some valid excuses. The sustained, vast increase in traffic (67.3 million more journey over the past year alone) has put pressure on the network and reduced the time available for maintenance works. But this cannot fully explain the delays.
The problem is that it is very difficult to work on lines that are in operation. An example of this was the vastly expensive WCML upgrade; planned at about £1 billion, it came out at £10 billion, over time and did not deliver everything planned. Often they only have lines between one in the morning and six the next morning; in those five hours they need to make the worksite safe, move equipment in and out, and do the work. Often this means that only two or three hours is work done a night, whilst the staff are paid time-and-a-half or double-time for the full shift. It is a very uneconomical way of working, and is getting more expensive as manpower and equipment costs increase, and the netwrok gets busier.
There is also a little fault on the part of the government, who from experience should not have trusted Network Rail's costings and should perhaps have slowed some of the work into CP6 (2019 to 2024) or later
This is a major embarrassment for the government. Since they went into the election less than two months ago proclaiming these projects, they should answer when they knew this decision was a possibility, especially as there have been signs that the GWML upgrade has not been going well. However the ORR's report into the first year of CP5 which highlighted these failures was only released on June 12th, so alternatively the government might be congratulated for reacting quickly and trying to get things back in order.
There is another issue: rolling stock orders have been placed for new trains to run on the upgraded lines, and some of these may have nowhere to run. Whilst orders can be cancelled or postponed, perhaps at a cost, there is also a problem in that many of the trains that were due to be replaced were going to be cascaded down to other lines. This entire process will have to be rethought, and will leave people in old, out-dated trains for longer.
It has left a great number of unhappy MPs, mostly Conservatives, who were looking forward to upgrades to existing lines as much as other Conservative MPs opposed HS2. This may well have long-term knock-on effects for the government.
What about HS2? Politically, it makes the project harder; already anti-HS2 groups are using it as a sign that the project's costs will not be kept under control. But as detailed above, building a new line is in many ways simpler than updating an existing one that carries trains. As the disastrous £10 billion WCML upgrade shows, it is very hard to get a handle on the costs of such upgrades. So if you believe that more capacity is needed, this news strengthens the case for HS2, even if politically it is weakened.
As a side issue, the TPE is being paused for another reason: some of the work might be replicated by HS3, which is part of George Osborne's plans for a 'Northern Powerhouse'. Whilst it makes sense to ensure that work is not wasted, passengers in the north deserve help now.
For another view, see Paul Bigland's excellent blog.