Network Rail plan promises subsidy savings

30 Sep 11
Rail companies expect to save £1.3bn from the annual cost of running trains by 2019, reducing the subsidy from government, according to a cross-industry five-year plan.

By Richard Johnstone | 3 October 2011

Rail companies expect to save £1.3bn from the annual cost of running trains by 2019, reducing the subsidy from government, according to a cross-industry five-year plan.

The publication of the plan on September 29 is the first stage of the next five-year agreement between the Network Rail and the rail regulator.

However, the Office of Rail Regulation has since cast doubt on the validity of efficiency savings already being made by Network Rail.

The Initial Industry Plan was drawn up by infrastructure owner Network Rail and train operators and suppliers. It sets out how to cut costs in the sector, which it says will allow the government to cut its annual spending on the railway. In 2009/10, this amounted to £4.6bn.

The plan, which has been submitted to government, says that the savings can be made through greater collaboration and changes in the way the government agrees passenger rail services, including longer contracts.

Network Rail, which maintains and improves the tracks, predicts that savings of 16% can be made from the start of the plan in 2014.

The company has already cut 27% from the cost of running the network between 2004 and 2009, and is forecast to make a further 23% by 2014.

But the likelihood of these being achieved was questioned by the ORR on September 30. The regulator said that only 11.3% of savings had so far been made, and Network Rail was unable to produce evidence to substantiate £90m of claimed efficiencies.

The industry plan also proposes £5.6bn of additional infrastructure investment, with improvements to the railway around Manchester, a project known as the Northern Hub, and electrification of two lines. These are the Midland mainline between London and Sheffield and trans-pennine services in the north of England.

It also includes the continuation of £4.9bn of improvements and new railways, including Crossrail in London.

Network Rail’s group strategy director Paul Plummer said that closer collaboration in the industry would lead to greater efficiency.

‘Revenue growth and improved efficiency taken together provide governments with real choices to consider, choices around the appropriate balance between investment, fares and subsidy,’ he said.

Next summer, both Westminster and Holyrood governments will outline what parts of the plan they want to pay for, and how much money will be available.

The ORR will then judge how much it thinks Network Rail should need to spend, and will make a final decision on funding in October 2013. The five-year deal, known as a control period, will begin on April 1 2014.

• The Scottish Government has announced that a new rail line will be funded by Network Rail, and not from private investors as originally planned.

The Borders railway between Edinburgh and the border town of Tweedbank was to be privately funded through a form of the Private Finance Initiative, but two of the three bidders pulled out.

Transport minister Keith Brown said that the construction by Network Rail could provide significant savings for the public purse, with a total cost expected of between £235m to £295m.

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