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Network Rail told to make do with £21bn in next five year funding period

Network Rail will get about £1.7bn less than it says its needs to run Britain’s railways between 2014 and 2019 in the funding settlement for the period announced today.

The Office of Rail Regulation has told Network Rail that it can have more than £21bn to fund day-to-day running of the network.

At the start of the year, Network Rail said it needed about £24bn but the regulator said the company is capable of saving £1.7bn.

This equates to a 20% cut in the cost of running the network. Network Rail had previously said a target of 18% was achievable.

The regulator has approved more than £12bn worth of enhancements to Britain’s rail network to ease congestion and improve performance on the railways. But it has noted that within this, projects totalling more than £7bn do not yet have clear delivery plans or costs and it is giving Network Rail until March 2015 to work up efficient plans for these enhancements before approving the funds.

The regulator is also proposing that rail users and train operators are given a bigger role to shape the specification and delivery of approved enhancements. This will put passengers at the heart of decisions on how the railway is improved.

The regulator said Network Rail will get £5bn for maintenance work and £240M for equipment and working practices to improve the safety of track workers.

The ORR said it had increased funding to upgrade or close level crossings by £32M from its draft determination published in June to £109M.

It said it had only revised the figures in the draft determination where “new and compelling evidence has been provided”.

It said it would also monitor Network Rail’s management, maintenance and renewal work more closely and intervene earlier to stop problems from escalating.

Network Rail has until 7 February 2014 to respond in detail the settlement.

By 31 January it must decide whether to accept or reject the funding settlement or appeal it through the Competition Commission if it cannot reach agreement with the regulator.

It will publish a draft delivery plan for the funding period in December and a detailed version on 31 March.

ORR chief executive Richard Price said: “Network Rail has made great strides in improving safety, performance and efficiency on Britain’s railways.

“Supported by significant levels of funding from governments, working more closely with the rest of the industry and learning important lessons from the past, the company is capable of delivering more for customers and taxpayers.

“This plan for Britain’s railways between 2014 and 2019 – informed by the public, consumer groups, governments and the industry – requires a safer, higher performing and more efficient railway.

“More level crossings will be upgraded or closed; passengers will enjoy better punctuality and suffer fewer cancellations; customers should have a say in shaping billions of pounds of new investment on the network; and the company will continue to bring down the day-to-day costs of running the railways.

“With increased levels of funding in vital areas such as safety and closer monitoring from the regulator, we expect Network Rail to build on past successes and beat the challenges we have set.”

Network Rail chief executive David Higgins said: “The next five years for the railway will prove to be a critical challenge.

“A challenge to continue to respond to rising passenger demand and our need to grow and expand the network, while at the same time juggling the ever harder challenges of improving performance, reducing cost and delivering huge investment projects from which substantial social and economic benefits flow.

“The determination has to be right to help the company, and the railway as a whole, succeed and deliver what’s needed by passengers, freight users and the taxpayer.

“We must now look at the individual targets within the determination as well as the package as a whole, and welcome the opportunity provided by the ORR to use the coming months to seek clarification and work through the detail.”

The ORR said it had focused on what matters to passengers in reaching its decision.

Passenger Focus’ research has shown that passengers on long distance services want fewer really bad days when services are cancelled or severely delayed. So there will now be a new regulated target for long distance services. By 2019, fewer than three in 100 trains on the West Coast Main Line and around four in 100 trains on the East Coast Main Line should be hit by severe disruption (delayed by more than 30 minutes/ cancelled).

ORR will also set new regulatory targets for Network Rail’s asset management in key areas where performance needs to improve, particularly focusing on how it manages, maintains and renews the rail network. Better asset management will allow the company to move from a ‘find and fix’ approach to maintenance to a ‘predict and prevent’ way of working, helping to boost capacity and improve performance on the network. The regulator will also put additional checks in place to monitor the company’s progress on making the network more resilient to bad weather and climate change. Getting timely and accurate information on Network Rail’s progress will help ORR track its performance and intervene at an early stage to highlight any emerging problems early on for customers.

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