Planning for Network Rail’s next control period, CP6, is in full flow after transport secretary Chris Grayling announced it would get £48bn to spend during the period.
Network Rail and its regulator, the Office of Rail and Road, are now working out how to spend the money.
Last month’s Statement of Funds Available (SoFA) gave the overall figure Network Rail has to spend as £48bn during the CP6 period running between the 2019-2024. It includes a direct government grant of up to £34.7bn and the rest made up from Network Rail’s expected income from areas such as track charges. The money will cover England and Wales, although Scotland is still awaiting the announcement of how much it will get.
For England and Wales, there is more money for maintenance and renewals, despite the ORR finding that Network Rail was becoming less efficient.
The extra funding came after the rail sector worked with the government over the summer to convince it that it wasn’t throwing good money after bad.
ORR director of railway markets and economics John Larkinson said: “We had an efficiency seminar and what was really good was the way the supply chain came in and talked about what they could do differently to improve efficiency in the future.”
Even though cash for major enhancements will have to be bid for separately, Larkinson says there is still a significant amount of cash within the £48bn to finish major enhancements already started and work on the development of new enhancement projects.
“There are billions put in the periodic review to finish lots of schemes already underway and to develop new ones, and that’s not what most people thought was going to happen, and that’s a bit of a tribute to what the industry did to convince them (the Treasury) that was the right thing to do,” said Larkinson.
The next milestone for CP6 planning will be the submission of Network Rail’s route plans on December 8. These route plans and the decisions to be made about how much money each route gets each year, are significant for the supply chain as civils firms in general prefer a steady stream of work rather than peaks and troughs.
There will also be changes to the governance of Network Rail in CP6, which will affect its financial planning.
First of all, it will not be allowed to borrow any money. The cash it will get is from the government, the money it raises itself through means such as track access charges from train operating companies. If the money runs out, it will have to raise funds via other means such as bringing in private investment.
Network Rail is in a huge amount of debt – net debt was £46.3bn at the last count and expected to hit £50bn by the end of CP5. Now the government has said that it will cover the interest costs, removing the risk of Network Rail being exposed to increasing rates.
However in CP6 Network Rail will be exposed to a new risk: inflation. So, while in CP5 government financial commitments were increased with the rate of inflation, for CP6 the initial government grant will be final.
“In the past they have uprated in line with inflation, now the government says here’s your money. If inflation is low Network Rail will make a gain, if it is higher Network Rail will make a loss,” said Larkinson.
The big financial announcement may have been made, but for the supply chain the next few months are crucial as it will be the detail which makes the difference.