Network Rail is the rail industry’s biggest player, a monopoly owner of 35,200km of track and numerous major stations.
Following reclassification in 2014 it is also responsible for £38bn of public debt and has recently presided over a number of high profile infrastructure enhancement and maintenance setbacks. The Shaw Report, commissioned by the government to make recommendations on the future of Network Rail, was published in March 2016. In this article I take a look at what the recommendations may mean for the construction industry.
A key recommendation of the report is to increase Network Rail’s devolution to more empowered regional “routes”. To be fair to Network Rail, this is a process it has already started. The Shaw recommendations go further though, proposing to divide the network into nine semi-autonomous routes that will be more accountable to their local communities and to the people who use them. The routes will need to understand and deliver local requirements with stakeholder panels including passenger and freight representatives. There are some similarities to the accountability structure being implemented for Highways England.
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One problem with Network Rail’s current structure is that its debt sits on the public balance sheet and it is severely restricted in how it can raise private funding to pay for enhancement works. Privatisation, loudly trumpeted by some in the run up to the report’s publication, is not on the table, however. Instead, the report proposes a number of alternative options to raise finance. These include allowing the routes to seek alternative finance from the European Union, central funds, private investors, local authorities and local enterprise partnerships which will benefit from enhancements which would otherwise not happen. Leveraging local value is a current theme in the rail sector with, for example, the National Infrastructure Commission requiring that Crossrail 2 be majority funded by London. Achieving this in the context of routes will need to be the subject of considerable further consideration by all concerned.
In the longer term, the report suggests that 20 to 30 year licences could be granted to the private sector to run parts of the network. If this type of structure can be made to work, it may be the key to unlock the long anticipated infrastructure investment from pension funds.
Another pitfall that those tasked with restructuring Network Rail will be keen to avoid is a return to the lack of accountability for maintenance and safety which led to the demise of Railtrack. To deal with this, the report recommends that the routes draw on central co-ordination and consistency from a route services directorate within Network Rail.
The report does not propose anything revolutionary but it does potentially pave the way for substantial alternative investment, one way or another. This can only be good news.
- Will Gard is a chartered civil engineer and a partner at Burges Salmon
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