Comment: What's going wrong with Network Rail's Control Period 7?

Network Rail is spending funds allocated for Control Period 7 tasks (2024-29) to complete work it should have delivered in Control Period 6 (2019-24). Philip Haigh examines the pressure to resource infrastructure and enhancement projects.

Spending more than your income results in misery. Or so said Mister Micawber in Charles Dickens’ David Copperfield.

It’s the tale of rail spending over the past decade, and it hammers home the point that a pound may only be spent once. If a project in one area spends more than expected, then the result is misery for another project.

Overall spending in a company such as Network Rail remains capped by the Department for Transport, in line with its spending limits set by HM Treasury in comprehensive spending reviews.

There was a time when NR could shake its magic money tree and simply borrow more when enhancement projects bust their budgets. But the National Audit Office turned off this golden credit card in 2014, when it reclassified NR’s debts as government’s debts.

Fast forward over a decade and NR Chief Executive Sir Andrew Haines is right to say, as he did to Transport Select Committee MPs on May 7, that it was not fair to taxpayers that NR could borrow money and expect them to pick up the interest tab on those debts.

NR’s credit facility wasn’t good business. Even though the Office of Rail and Road had to approve increases in enhancement project budgets to allow NR to access its flexible friend, it was too easy to use these borrowing powers to escape the consequences of poor planning and project delivery.

But cutting up the credit card meant NR going elsewhere in its budgets to find money to plug overspends - and that meant cuts to those areas.

NR’s budget has sustained more adverse pressure since the COVID pandemic, as inflation tore through spreadsheets. Haines reckons that the cost of concrete sleepers has increased by 75% since 2019. And ballast now costs 80% more than it did.

That’s bound to have an effect on NR’s enhancements project such as its £10 billion Transpennine Route Upgrade.

It also strikes more mundane track renewal projects that form one basis of each five-year Control Period’s funding and budgets. In particular, NR witnessed intense inflationary pressure as CP6 ended in 2024, with projects running out of money and being left unfinished as CP6 morphed into CP7.

The result is that NR has been forced to spend money allocated to CP7 tasks to complete the work it should have delivered in CP6. At risk of stating the obvious, this means less money for CP7’s worklist.

So, while Haines can say he spent 19.2% of CP7’s money in its first year (of five, so he’s just short of the 20% expected), for suppliers the situation looks very different.

Rail Industry Association Policy Director Robert Cook explains: “At the end of Control Period 6 you had inflation, which came as double-digit inflation eating through significant amounts of budgets. So, there was work that was not completed at the end of Control Period 6. That then had to be completed out of CP7 budgets once the new Control Period started last year.

“That meant that work that people had been expecting would go ahead last year didn’t go ahead. On top of that, there were already plans, quite significant swings, in what type of work was going to happen in the next Control Period.

“There was an 11% reduction in the amount of track renewals that was planned, certainly renewals in England and Wales regions, and a lot of that was due to be offset by a national level signalling project. Now, that spending hasn’t happened yet.”

Both sides are correct. NR is spending the same amount of money as it said it would spend. But suppliers expecting to see it spent in one area are instead seeing it go to other areas.

All of which creates uncertainty and sets to naught efforts by suppliers to prepare. The result is rail suppliers making staff redundant or going bust themselves.

Yet Network Rail is spending staggering sums of money. For CP7, it plans to spend £19.3 billion on renewals, £12.6bn on maintenance, as well as £4.4bn on operations and £5.3bn on support. None of NR’s headline figure of £45.4bn CP7 spending is investment.

Take out the £4.3bn on electricity for traction, which is a pass-through charge to operators, and NR is spending over £40bn just on the railway it has. That’s over £8bn a year, which equates to £158 million a week.

Then there’s investment which comprises enhancement spending that makes the rail network more capable tomorrow than it is today.

Last year the Northumberland Line reopened to passengers at a cost of £300m, linking Newcastle and Ashington by train for the first time since the 1960s.

In Scotland, trains started running to Levenmouth last year, again for the first time since the 1960s, with rebuild costs of £117m.

East West Rail has spent over £900m to run trains between Oxford and Bletchley from later this year, and it expects to spend £7bn in total to provide its direct Oxford-Cambridge link sometime in the next decade.

On the Transpennine Route Upgrade (TRU), Haines reckons NR is spending £1bn a year.

Then there’s the grandaddy of them all - High Speed 2, which MPs heard on May 7 is currently spending £7bn a year on its new railway between London and Birmingham.

This looks like a boom in rail spending. But if you’re not on one of these mega-projects, then times are tight, and the situation looks bust.

What then of the fabled, mythical Rail Network Enhancements Pipeline (RNEP)? Seen once in 2019 and since invisible, it promised transparency to allow suppliers to see what work might be coming.

The document itself says: “By listing schemes in this document, the government is not committing to their ultimate delivery. As schemes move through the RNEP governance process, they will be subject to regular assessment of the value for money case, and priorities for funding across the entire portfolio. Schemes which do not meet these criteria at decision gateways will not proceed to the next stage.”

That’s entirely sensible and built a process that assessed each project at stages where the DfT could decide to develop, design or deliver projects. It was a reaction to projects such as electrification of the Great Western Main Line in the mid-2010s, where construction work started with incomplete design work. This brought broken budgets and trashed timescales. Ultimately, DfT cut this project short so that wires remain shy of Oxford or Bristol.

RNEP looked to correct that, and built a process that means projects could fail to make the cut at any stage. But with no updates coming from the DfT since 2019, no project has formally been removed in an open and transparent way.

Haines was blunt in front of those MPs on May 7, when he was asked why RNEP had not been updated: “Because, at the risk of being controversial, it’s a flawed proposition. By which I mean that it is owned politically and is therefore subject to shifting political priorities. It’s not a strategy for the railway.

“So, what we see is (particularly at a time when there’s more demand for things) a new politician will come wanting to do something new - Restoring Your Railways, for example. And that gets added to the list, but nobody wants to take anything off. So very quickly, the numbers don’t add up and the easiest way to not expose that is to not publish the pipeline.”

In those few words, Haines exposes the dishonesty at the heart of DfT’s treatment of our rail network. A dishonesty that kids supporters and suppliers that there’s work coming to build a better railway when there’s no money to do so.

That’s DfT’s legacy from its 20 years in charge since Labour Transport Secretary Alistair Darling abolished the Strategic Rail Authority and took direct control.

It’s a history littered with half-built projects such as Ordsall Chord in Manchester, which fed more trains into a corridor known to be already congested, but then failed to fund the second half of the scheme that would have widened that corridor.

It’s the real reason why Great British Railways provides some hope. Forget the headlines of train operator nationalisation, the reason privatisation failed is the inept direction from successive ministers when faced with a railway so successful that it was bursting at its infrastructure seams.

The answer could be (and sometimes was) to have been more tracks, signalling, and other infrastructure. Or it might have been clear direction to Network Rail and train operators to make the most of what they had and expect no more.

Instead, ministers tried to please the crowds with promises they should have known could not be delivered.

GBR provides the chance to put that history behind us. To do that, it needs clear strategic direction from Transport Secretary Heidi Alexander that explains what GBR is to deliver (the ‘ends’ - what Britain will receive), how it should be done (the ‘ways’ - which needs to be clearer than a GBR directing mind conflicting with devolved decision-making), and with what resources (the ‘means’ - chiefly money, from wherever it can be found).