BRITAIN’s Office of Rail and Road (ORR) has set out its final determination of infrastructure manager Network Rail’s (NR) £43.1bn five-year plan, which includes £38.5bn for England and Wales and £4.6bn for Scotland. The plan covers the five years from April 1 2024, known as Control Period 7 (CP7).

Since the ORR’s draft determination on the plan in June, NR has responded positively to ORR’s challenge in a number of areas, including increasing spending on core infrastructure by approximately £600m to bolster asset sustainability, safety and performance.

The 2023 periodic review (PR23) determines what NR is expected to deliver with respect to its operation, support, maintenance and renewal (OSMR) of the network during CP7 and how the available funding should be used to support this.

Total expenditure includes:

  • operations: £4.3bn, up 9% from £4bn in CP6
  • support: £5.061bn, down 14% from £5.892bn
  • maintenance: £11.388bn, up 7% from £10.666bn
  • renewals: £19.733bn, down 7% from £21.189bn
  • industry costs, rates: £1.888bn, up 11% from £1.704bn
  • electricity for traction (EC4T): £4.964bn, up 62% from £3bn
  • adjustment to operation, support, maintenance and renewal (OSMR) expenditure: £1.121bn
  • risk provision: £1.735bn
  • total expenditure: £48.031bn, up 3% from £46.539bn
  • total expenditure (less EC4T): £43.065bn, down 1% from £43.47bn.

ORR says the final determination sets specific train performance requirements that are more challenging than originally proposed but are still realistic. Meeting these targets will require NR to work with operators to ensure that train cancellations are reduced and that punctuality is maintained across Britain, even as passenger numbers increase.

In response, NR has improved its plans by proposing point values for ‘On Time’ train punctuality which are towards the top or higher than the ranges it proposed in its strategic business plan for its Eastern, Southern and North West and Central regions in England and Wales. It has also provided better evidence to support its forecast for its Wales and Western region. NR has also provided ORR with better information to demonstrate how it plans to contribute to reducing passenger cancellations during CP7. ORR has assessed these revised forecasts and considers that they now set “appropriately stretching yet realistic expectations” for train performance.

As ORR says it recognises the challenges to accurately forecasting train performance at this time, it will reassess passenger train performance targets for England and Wales in advance of year three of CP7. “This two-year window creates an opportunity for train companies to work with NR to better align planning processes,” ORR says.

ORR has set “appropriately challenging” targets for what NR delivers for freight operators, and the infrastructure manager will be required to reduce freight train cancellations from current levels. ORR has also set rail freight growth targets across Britain for the first time and says NR will need to play its full role in supporting growth of 7.5% in rail freight for England and Wales and 8.7% for Scotland. ORR says it supports NR’s plans to upgrade its structures to better support freight, adding it now needs to work with the industry to deliver the conditions for growth. ORR is also continuing to cap track access charges for freight operators below cost.

Infrastructure renewal

ORR says it welcomes NR’s increase in spending on renewing core assets such as track, structures and earthworks, which addresses its concerns from the draft determination and will bolster asset sustainability, safety and performance. This is particularly important with the challenges presented by climate change. Indeed, CP7 will see spending on climate change more than double to £2.2bn in Britain compared with £1bn in CP6. ORR considers that NR has a suitable framework to understand and manage the change in risk from carrying out fewer renewals and a move to greater maintenance of existing assets.

ORR says significant uncertainty has shaped the development of NR’s plans and its review of them. For example, inflation has increased financial challenges and climate change presents further uncertainty. Effective risk management will therefore be important as will risk funding. ORR requires NR to maintain sufficient and well managed levels of risk funding and concluded that NR should retain provisions for risk funding of £1.5bn in England and Wales and £225m in Scotland.

ORR says it recognises the tight fiscal context in which NR’s plans have been developed, adding it is vital that NR continues to build on the success of recent efficiency initiatives, to help secure a financially sustainable railway and deliver value for money for passengers, freight and funders of the railway.

ORR has carefully reviewed NR’s efficiency targets for the next five years which would see NR deliver efficiencies of at least £3.6bn in Britain and found these to be stretching but achievable. NR says it has achieved efficiencies of £4bn in CP6 compared with a target of £3.5bn.

To support the move towards a low emissions railway, ORR will hold NR to account for delivering a more than 20% reduction in its carbon emissions. ORR has also set a target for NR’s efforts to conserve and enhance biodiversity.

“I’m pleased to see that NR has responded well to our challenges to its initial plans and the result is more robust and customer focussed plans which we believe will deliver better outcomes for passengers and freight,” says ORR director, economics, finance and markets, Mr Will Godfrey. “The plans are challenging but achievable. Our five-year funding and regulatory settlement provides stability and a platform for the industry to plan and invest. This is important not just for NR, but also for passenger and freight operators and the supply chain.”

ORR also confirmed that it will retain broadly the same structure of charges and incentives for passenger and freight operators. As such:

  • variable charges for passenger operators will remain cost-reflective in CP7
  • variable charges for freight and charter operators will continue to be capped below cost for this control period
  • infrastructure cost charges for freight operators will stay the same or reduce, in inflation adjusted terms
  • open access operators will pay charges that recover some of the fixed network costs, where the demand is sufficiently strong that the operator is able to pay. These charges will remain at current levels, adjusted only for inflation
  • ORR will allow for contractual incentives between NR and operators, which are designed to limit disruption, to be updated within the control period, and
  • ORR has also introduced flexibility to allow for the removal of these incentive payments between the new Great British Railways (GBR) and its contracted operators, provided there is sufficient legislative change to permit this.

ORR will now implement these changes by amending operators’ track and station access contracts.

Over the next five months, NR will continue work on its detailed plans for operating, maintaining and renewing the network for CP7, which it plans to publish at the end of March next year. Enhancements are funded separately on a case-by-case basis.

“The rail sector enjoys an almost unique level of funding certainty and that is a privilege that comes with serious responsibilities,” says NR chief executive, Mr Andrew Haines. “More than £43bn will be spent over the next five years to deliver a safer and better railway for passengers and freight customers. Today’s announcement gives clarity and certainty for the railway and our supply chain partners and will now enable us to continue building on our detailed delivery plans.”