Network Rail chief executive Iain Coucher this week defended the company from criticisms about its failure to deliver efficiencies.
He said that improved communication with the Office of Rail Regulation (ORR) would be crucial to maintaining confidence in the railway operator’s ability to deliver a lower cost network.
He described the regulator’s recent criticisms of Network Rail’s last 12 months’ performance as “a bit disappointing”. Coucher pointed out that it was “succeeding in the areas that are important to customers” such as safety and train punctuality.
“Clearly our communication [with the regulator] needs to be better - I would accept that,” he said. “In the first year we always knew that we will be behind the pace [of cost saving] and we made it crystal clear [to the ORR] that this was the plan.”
Coucher was responding to the ORR’s concerns that Network Rail would miss deadlines to deliver efficiency gains (News last week).
“We agree that we can be more efficient”
Iain Coucher, Network Rail
He said that the criticism was unjustified since the ORR was measuring Network Rail’s efficiency improvements against its regulated spending programme rather than its own business plan.
Its business plan, he said, includes an additional 3% improvement rolled over from the previous five year period. This was on top of the 21% demanded in the five years to 2014.
“We would like to be further ahead [with our efficiency targets] but it is a difficult balance between keeping the railway running and saving money,” he said. “We achieved the upper end of our operational targets - despite [the disruption caused by] this year’s snow. That’s £265M of cost efficiencies achieved last year.”
Meeting the regulator’s efficiency improvement target of 21% over the current five year regulatory control period meant, he explained, “doing £35bn of work for £30bn”.
So far, he said, £1.2bn of savings has been banked leaving £4.2bn to be saved in the next four years. Plans are already made to save around £3.5bn of this leaving another £700M of cuts still to find.
He added that some of this will be achieved by squeezing existing budgets harder and by shaving cost from logistics and materials. But he said that fundamentally savings would come down to cutting labour costs.
Radical change to the way in which Network Rail organises its staff and maintenance working patterns is, therefore, a priority.
“It has been a difficult year in terms of industrial relations,” he said, referring to the recent attempted industrial action by signalling and maintenance staff, avoided only after a court ruled it illegal. But he said that there was a “dawning realisation” in the industry that change was needed.
“We need to change working practices of the front line maintenance staff because we are in the business of running a railway,” he said. “There are long term embedded inefficiencies. We agree that we can be more
efficient.”He said that increased debt carried by Network Rail was the healthy result of continued capital investment in the network.
“We are investing in an expanding railway and debt going up is good so long as we are not funding our operational costs with it - which we are not,” said Coucher. “Big investment continues. We are looking at innovative ways to keep the railway open for longer.”
Coucher also said that, given the need to reduce public spending, discussions were ongoing with the government regarding current investment programmes.
However, he said it would not make sense to stop well defined schemes such as the electrification programme, Crossrail and Thameslink.
“We should not be wasting money building any schemes that have not got immediate benefits,” he said but added that unless the government specifies a much smaller railway then there is a limit to what can be saved.
Transport secretary Philip Hammond this week announced that he wants an independent review of value for money in the rail industry to report back early with its initial findings. The review by transport industry expert Sir Roy McNulty will now speed up its work so that preliminary findings are ready in time to inform government decisions on public spending in the autumn. The study will focus not just on cutting costs but identifying how the industry can work more innovatively.