Network Rail was set up in 2002 as a company limited by guarantee, but in September 2014 was reclassified as a public body. Shaw says the impact of this decision has been:
- To reduce NR’s financial flexibility.
- NR faces greater scrutiny on financial and operational performance and pay, as well as incurring increased reporting requirements.
- NR has had to adjust to “complex and multi-faceted relationships” with different government departments and Parliament.
- There has been a greater focus on non-core commercial activities and assets for “potential monetisation”.
The company’s problems in Control Period 5 (CP5, April 2014 to March 2019) have been well documented, with costs for projects such as the Great Western Main Line electrification soaring and delays accruing. Shaw says reclassification of NR has made it much more difficult for the company to alter spending plans in response to higher costs.
The July budget revealed plans to channel more public money through train operators rather than directly to NR, as well as calling for it to devolve responsibilities to routes and establish a dedicated body to focus on realising value from land and property on the rail network.
All of this is happening at a time of intense potential change in policy. The Periodic Review for CP6 (2019-2024) is in its early stages; there are 11 franchises due to be awarded by 2020; and the Office of Rail and Road (ORR) is consulting on regulation of NR in CP6 and about a specification for a system operator for the rail network.
And there’s more: the Competition and Markets Authority is investigating increased on-rail competition; more transport powers could be devolved to Scotland, Wales and the English regions; the new National Infrastructure Commission could have an effect; and finally there is the European Union’s Fourth Railway Package, which will also have an impact on Britain’s railway.
Network Rail has a massive range of responsibilities - from operation, maintenance, renewals and enhancement of the network to planning and timetabling services, property, security and station management.
Shaw suggests that many of these functions were included within the infrastructure operator at privatisation “sometimes simply because there was nowhere more obvious to put them”. Her first question is therefore a logical starting point: “What are your views on the scope of NR’s functions?” with a follow-up asking if the report omits any specific and important factors.
At present NR operates seven geographical routes with a national function for freight operators. Central support covers functions such as human resources, safety, network strategy, property and legal aspects. The company intends to devolve a range of functions to the routes, with this process under way.
Looking beyond these plans, Shaw suggests that alternative approaches of “disaggregating” the network could be considered. Options mooted include on the basis of political or economic geographies, or by service type (inter-city, regional or commuter).
The team conducting the Shaw Report says it wants to establish whether there is a case for changing from the current route-based structure, and what the potential advantages and disadvantages of that might be.
However, devolution carries risks. It could (says the report) have the potential to fragment and complicate co-ordination, and create additional interfaces that reduce economies of scale in certain areas.
The alliance approach adopted by NR in Scotland (for the Paisley Canal line electrification) and in Wessex (with South West Trains) has led to some benefits, and although the arrangement in Wessex ended earlier than expected, considerable thought is being given to how incentives for train operator and infrastructure provider can be aligned. Shaw seeks views on the advantages and disadvantages of changing the current route structure and what other solutions might offer.
Her scoping document also asks whether the current balance of responsibilities between routes and central functions are appropriate, what responsibilities could be devolved or centralised, and what economies of scale should be protected at a national level. It also asks what capabilities need to be in place to support the current devolved structure, and what the impact would be on respondents’ organisations if NR’s structure changed.
NR accountability was initially to stakeholders, but this has changed since its reclassification as a public body. Effectively, NR is now accountable to the Government, the ORR, taxpayers, other funders and customers.
The Department for Transport has oversight of NR, and monitors its performance. Transport Focus, the Rail Delivery Group and the Rail Safety and Standards Board also provide oversight. Shaw seeks views on their arrangements and effectiveness.
With no shareholders as such to hold its board accountable, NR’s incentives to deliver its promises are financial and reputational, according to Shaw. She cites operational performance regimes with operators, fines from the ORR (although as Shaw acknowledges, now that NR is in public ownership this is effectively a fine on the taxpayer) and penalties for overspending. Its reputational incentives are based on public reporting to the ORR and by the ORR, enforcement orders, reporting to government, media coverage, and the ability of the board of directors and chairman to remove the chief executive and that of the Secretary of State to remove the chairman.
Shaw asks three key questions on this aspect:
- How effectively are customer needs and expectations met by NR?
- Should direct customer pressure on NR be strengthened, and if so how should it be achieved?
- Are there more positive incentives for delivery that would be useful? Are any of these incentives more effective than others?
There are currently £18.3 billion of enhancements planned on the network for the next ten years, with two-thirds of those projects expected to cost under £100 million. Electrification accounts for a third of the investment. Shaw seeks views on the current planning process for enhancements, and suggests that the current process is “far from perfect”. Key issues identified are:
- Role definition.
- Political involvement.
- NR’s ability to work with the supply chain.
- Capacity and technical ability within different organisations.
- Risk and reward.
NR is criticised for being “an unresponsive contractor unwilling to make alterations to projects even on an emerging cost basis”. Shaw argues that this has a knock-on effect on suppliers’ staffing, training and resource decisions that filters through the supply chain, sometimes with wider industry implications.
The Bowe Review is set to recommend changes to the planning process, and the Shaw Report team says it will build on the findings. Shaw asks respondents what are NR’s strengths and weaknesses in planning and delivering enhancements, how well the current planning and delivery processes work for projects of different sizes, and whether there are useful models or precedents from other industries or countries that should be considered.