London St Pancras Highspeed charges fall as ORR predicts fewer renewals

London St Pancras Highspeed (formerly known as HS1) moves into its fourth five-year Control Period on April 1, with charges to operators falling by almost 8%. This means it will receive charges from train operators of £833.7 million in CP4 (2025-30) compared with £905.5m in CP3 (2020-25), according to the Office of Rail and Road’s final determination (RAIL 1028).

ORR explains that the decrease relates mainly to London St Pancras Highspeed’s reduced renewals spending over a projected 40-year period. The figure sits below the firm's revised claim of £858.5m.

London St Pancras Highspeed holds until 2040 a 30-year concession from the Department for Transport to operate the line between St Pancras and the Channel Tunnel. In turn, HS1 contracts operations, maintenance and renewals to Network Rail (High Speed), which is a subsidiary of Network Rail Infrastructure Ltd.

London St Pancras Highspeed recovers its costs from train operators, chiefly Eurostar and Southeastern, using a variety of charges based on time on the line and distance travelled. In addition, East Midlands Railways pays to use London St Pancras station for its services along the Midland Main Line.

Money for route renewals goes into an escrow account. Funds within the account earn a return and can only be withdrawn with permission from the Transport Secretary for renewals approved by ORR. This smooths the flow of income and allows the fund to grow, to be ready for major renewals when they occur.

One of the challenges for London St Pancras Highspeed, ORR and NR(HS) is predicting these renewals. HS1 is a fairly new railway, only around 20 years old, so has not needed any major renewals.

As ORR notes in its final determination of access charges (published in early January): “Good-quality, HS1-specific renewals cost data does not exist for most HS1 assets, because the assets have never been renewed.”

So far, this has led to operators paying more than they need into the renewals funds. ORR is correcting this for CP4 charges, which explains their overall reduction.

To fill this gap in knowledge, London St Pancras Highspeed and NR(HS) developed a track deterioration model in CP3 to assess future track renewal and maintenance options.

In the November version of its five-year asset management strategy (5YAMS), London St Pancras Highspeed said: “The model has supported strategic decision-making for track assets and has allowed significant reductions in track and ballast renewals and maintenance.”

Across 40 years, London St Pancras Highspeed suggests reducing ballast renewals by 18%, re-railing by 31%, and sleeper renewals by 43%. For its overhead line equipment (OLE), the model suggests that at current wear rates, full renewal sits beyond 40 years.

That still leaves ballast renewals that start in CP4 as London St Pancras Highspeed’s “first significant intrusive renewals project since the start of operations”. It takes the form of a ballast cleaning programme that starts in CP4’s fourth year and runs to the second year of CP5, treating 45km (28 miles) of track in CP4 and 38km (24 miles) in CP5.

London St Pancras Highspeed says that NR(HS) hopes to use high-output plant from Network Rail, as ballast cleaning on the national network reduces later in this decade.

ORR’s review suggested that there are still risks around this programme - particularly in terms of the possessions (line closures) needed to deliver it. Southeastern queried the increase in costs from £575,000 per km used in the last periodic review five years ago to £1.4m per km this time, giving a total cost of £90m.

In its draft determination, ORR said HS1’s ballast renewal costs were “towards the upper end of what we would expect on the main line railway”, but were “reasonable because this will be the first renewal of this size on HS1”.

ORR’s final determination concluded that London St Pancras Highspeed’s plans were satisfactory, while calling on London St Pancras Highspeed to continue talking with train operators about access requirements.

London St Pancras Highspeed sub-contracts operations and maintenance to NR(HS), paying the company an annual fixed price which includes a management fee that in CP3 was 8% of costs.

ORR suggested cutting this to 6.6% in CP4, which would save £3.7m from HS1’s proposed annual fixed price of £258.8m for the five years.

Following counter arguments from London St Pancras Highspeed and NR(HS), ORR dropped this saving in favour of pursuing efficiencies elsewhere. This led ORR to cut the level of operations and maintenance costs that London St Pancras Highspeed can pass on to operators through charges by £11.5m.

This is lower than ORR’s draft figure of £14.7m because it has recognised factors such as the government’s increase in employers’ national insurance payments.

Shifting from overall London St Pancras Highspeed costs to the charges operators pay depends on likely traffic levels. Lower traffic estimates feed into higher charges per train, while an increase in traffic spreads London St Pancras Highspeed’s cost more thinly across each service.

DfT guarantees a minimum level of domestic services, provided by Southeastern. If the operator runs fewer services than the guaranteed ‘underpin’ level, then London St Pancras Highspeed receives payment for the higher level. The underpin is around 52,800 trains per year, although it varies slightly across CP4. London St Pancras Highspeed said in November that its expected actual domestic traffic to be around 49,400 trains per year.

For international services, London St Pancras Highspeed’s November version of 5YAMS reckons on 16,893 trains in 2025-26, rising to 17,079 trains in 2029-30. These figures are lower than an earlier version of the 5YAMS document (which used roughly 17,800 international trains per year).

The change prompted Eurostar to complain to ORR that London St Pancras Highspeed was (at a late stage in the periodic review) setting “a more conservative volume forecast estimate to eliminate every opportunity for cost under recovery, while increasing unit charges for its users”.

Eurostar General Secretary Gareth Williams added in his letter to ORR: “It continues to be a surprise that HS1, uniquely among infrastructure managers with whom we deal, considers itself able to impose its own volume estimates in place of those evidenced by the operator whose business it is to actually plan and run these services.”

To reach its final decision on charges, ORR used an international train figure of 17,218 for the first year of CP4, rising to 17,408 in the final year, which HS1 will now use.

ORR’s decision on charges takes no account of freight running. London St Pancras Highspeed has not seen freight services since the middle of last year. It had suggested a forecast of 200 trains per year, but now says that freight is unlikely to return in CP4. It used the 200 estimate to produce an indicative freight charge of £641 per train - 35% lower than the current charge of £1,424.

London St Pancras Highspeed reckons that Brexit and overall service quality for international freight sit behind this decline.

ORR agreed that zero freight was a realistic figure, and with London St Pancras Highspeed using a figure of 200 trains annually to calculate what charges would be if freight returns.

London St Pancras Highspeed’s access contracts with train operators include provision to revisit charges if traffic volumes change. This ‘volume reopener’ (VRO) triggers when train numbers change by 4% above or below ORR’s final determination figures.

This might come from current operators cutting or adding services, or by new operators adding services. Currently, there are proposals from Evolyn, Virgin and Heuro, although London St Pancras Highspeed said in February that its forecasts assumed a new operator starting only in CP5.

As it approaches CP4, HS1 Chief Executive Robert Sinclair said his company would “encourage people to fall in love with high-speed rail”, noting the need to deliver “a safe, reliable, high-performing railway at a reasonable price”.

High Speed 1

HS1 runs from London St Pancras to the Channel Tunnel in Kent. It’s a 109.9km (68-mile) high-speed line with four stations: St Pancras, Stratford, Ebbsfleet and Ashford.

Eurostar uses the route for its international services between London, Paris, Brussels and Amsterdam. Southeastern runs domestic services into Kent, using HS1 as far as Ashford. Freight has used HS1, but none runs currently.

The line opened in two stages. In 2003 the section between the Channel Tunnel and Southfleet Junction opened. The second stage opened in 2007 from Southfleet Junction into London St Pancras to complete the line.

Between 2003 and 2007, Eurostar used a short link between Southfleet and Fawkham Junctions to reach Network Rail tracks and London Waterloo. This link remains but isn’t used by passenger services.

The Office of Rail and Road (ORR) regulates track access charges paid by train operators to use London St Pancras Highspeed's track and stations. It receives further income to recover its long-term costs and for shops and car parks at stations, but ORR has no role in regulating this income.

Operations and maintenance costs for stations are called ‘Qualifying Expenditure’ (or Qx), and they sit outside the scope of ORR’s periodic reviews. London St Pancras Highspeed receives no UK government grants.

Like Network Rail, London St Pancras Highspeed works to five-year control periods to allow ORR to decide charges to train operators, based on ORR’s view of London St Pancras Highspeed’s operating, maintenance and renewals plans.

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