Network Fail: Getting UK Rail Back on Track

• Following last year’s decisive General Election result, this Paper addresses the key issues affecting the UK railways sector – and especially those relating to its financing. It advocates the need for concerted action on several railway fronts.        
                              
• Network Rail, with its £41.6 billion of net debt now on the public balance sheet, should be progressively sold down. An initial 49.9% sale to long-term investing institutions is proposed; in the interim, its finances need major over-hauling. The eventual aim should be to create a railway equivalent of National Grid - now worth over £40 billion - in the electricity sector. 
   
• Whilst the re-imposition of vertical integration of the railway network would be immensely challenging, some smaller lines could be progressively divested by Network Rail as part of a local transportation policy. The Merseyrail structure offers a possible template. In the longer term, integrated regional railway companies could emerge. In the utility sector, National Grid’s sale of some gas distribution networks also provides a relevant precedent.   
   
• Currently, open access concessions account for less than 1% of passenger journeys. However, this figure would rise sharply if the Office of Rail and Road (ORR) were more pro-active in promoting open access schemes – and made its abstraction formula less onerous to such applicants. Alliance Rail has been at the forefront of winning open access approvals.   
   
• Although the much-criticised franchise system should be retained, the Department for Transport (DfT) and ORR should crack down hard on under-performing rail franchise holders. Substantial fines could be levied, senior management changes demanded or the ultimate sanction - franchise withdrawal - could be imposed.
   
• The controversial £50+ billion High-Speed 2 project should be scrapped on grounds of excessive cost compared with the questionable benefits that may accrue. The numbers, including the projected Benefit/Cost Ratio, simply do not stack up. 
   
• Instead, a far less grandiose, more piece-meal, investment approach is needed to deal with understandable concerns about the overcrowding at some peak periods on the southern parts of the West Coast Main Line (WCML). Overall seat occupancy on the WCML remains well below 60% compared with the near 90% figure achieved by leading budget airlines. 
   
• The embryonic Northern Powerhouse initiative merits detailed study. Designing new railway infrastructure, centring on the Manchester/Leeds hub, is pivotal. In time, this should embrace points west at Liverpool and points east at Hull. It is important, too, that the delayed London to Sheffield Midland Mainline and the TransPennine Express electrification schemes are accorded a high priority.
   
• With EU regulation creating far more opportunities for the railways sector, UK companies are planning to expand overseas. Indeed, Arriva – now owned by Deutsche Bahn - has recently won several train franchises in Europe. Network Rail is well-placed to develop a sizeable overseas business, given the UK’s extensive railway construction activities during the days of Empire.

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