Since the ORR’s draft determination in June, Network Rail has revised its plans, responding positively to ORR’s challenge in a number of areas. This includes Network Rail increasing spending on core railway infrastructure by approximately £600mn to bolster asset sustainability, safety and performance.
ORR's decisions are set out in its final determination. The key points are:
ORR’s final determination sets specific train performance requirements that protect the interests of passengers and freight. The targets are more challenging than originally proposed by Network Rail but are realistic. Meeting these targets will require Network Rail to work with operators to ensure that cancellations are reduced and that punctuality is maintained across Great Britain, even as passenger numbers increase.
ORR recognises the challenges to accurately forecasting train performance at this time and so will reassess passenger train performance targets for England & Wales in advance of year three of CP7. This two year window creates an opportunity for train companies to work with Network Rail to better align planning processes.
ORR has set appropriately challenging targets for what Network Rail delivers for freight operators. Network Rail will be required to reduce freight cancellations from current levels.
ORR has set rail freight growth targets across Great Britain for the first time. Network Rail will need to play its full role in supporting growth of 7.5% in rail freight for England & Wales and 8.7% for Scotland. ORR supports Network Rail’s plans to upgrade its structures to better support freight and it now needs to work with the industry to deliver the conditions for growth.
ORR is also continuing to cap track access charges for freight operators below cost.
Renewing the railway
ORR welcomes Network Rail’s increase in spending on renewing core assets (such as track, structures and earthworks). This addresses our concerns from the draft determination and will bolster asset sustainability, safety and performance. This is particularly important with the challenges presented by climate change.
ORR considers that Network Rail has a suitable framework to understand and manage the change in risk from carrying out fewer renewals and a move to greater maintenance of existing assets.
Managing risks effectively
Significant uncertainty has shaped the development of Network Rail’s plans and our review of them. For example, inflation has increased financial challenges and climate change presents further uncertainty. Effective risk management will therefore be important as will risk funding.
ORR requires Network Rail to maintain sufficient and well managed levels of risk funding. We conclude that Network Rail should retain provisions for risk funding of £1.5bn in England & Wales and £225mn in Scotland.
Delivering value for money
ORR recognises the tight fiscal context in which Network Rail’s plans have been developed. It is therefore vital that Network Rail continues to build on the success of recent efficiency initiatives, to help secure a financially sustainable railway and deliver value for money for passengers, freight and funders of the railway.
ORR has carefully reviewed Network Rail’s efficiency targets for the next five years and, drawing on a range of evidence, found these to be stretching but achievable. This would see Network Rail deliver efficiencies of at least £3.2bn in England & Wales and £0.4bn in Scotland.
Protecting the environment
To support the move towards a low emissions railway, ORR will hold Network Rail to account for delivering a more than 20% reduction in its carbon emissions. ORR has also set a target for Network Rail’s efforts to conserve and enhance biodiversity.
Will Godfrey, Director, Economics, Finance and Markets at ORR said:
Notes to editors
The 2023 periodic review (PR23) determines what Network Rail is expected to deliver with respect to its operation, support, maintenance and renewal (OSMR) of the network during CP7 (April 2024 to 2029) and how the available funding should be used to support this.
Network Rail receives the majority of its funding from the UK and Scottish Governments. In addition to making available separate funding, each government also sets out a High Level Output Specification (HLOS) detailing what it expects Network Rail to deliver using the funding available. The remainder of Network Rail’s income comes from charges to passenger and freight operators and commercial income such as from property.
2. ORR also confirmed today that it will retain broadly the same structure of charges and incentives for passenger and freight operators as now. Specifically:
- Variable charges for passenger operators will remain cost-reflective in CP7.
- Variable charges for freight and charter operators will continue to be capped below cost for this control period.
- Infrastructure cost charges for freight operators will stay the same or reduce (in inflation adjusted terms).
- Open access operators will pay charges that recover some of the fixed network costs, where the demand is sufficiently strong that the operator is able to pay. These charges will remain at current levels (adjusted only for inflation).
- Infrastructure cost charges for freight operators will stay the same or reduce (in inflation adjusted terms)
- ORR will allow for contractual incentives between Network Rail and train operators, which are designed to limit disruption, to be updated within the control period.
- ORR has also introduced flexibility to allow for the removal of these incentive payments between Great British Railways (GBR) and its contracted operators, provided there is sufficient legislative change to permit this.
- ORR will now implement these changes by amending operators’ track and station access contracts.
ORR’s draft determination called for more stretch in Network Rail’s plans for contributing to whole industry train performance in CP7. In response, Network Rail has improved its plans by proposing point values for ‘On Time’ train punctuality which are towards the top or higher than the ranges it proposed in its strategic business plan for its Eastern, Southern and North West & Central regions in England & Wales. It has also provided better evidence to support its forecast for its Wales & Western region. Network Rail has also provided ORR with better information to demonstrate how it plans to contribute to reducing passenger cancellations during CP7.
ORR has assessed these revised forecasts and consider that they now set appropriately stretching yet realistic expectations for train performance.