As Deep Throat advised – it pays to follow the money
When it comes to the Department for Transport, this column’s default setting is that cockup trumps conspiracy every time. Well, not quite every time. There was the attempt to award the Inter-city West Coast franchise to ‘anyone but Branson’.
But even then the Machiavellis at New Minster House reverted to type and cocked up.
But with the publication of the Statement of Funds Available (SoFA) for England & Wales in Control Period 6 starting on 1 April 2019, I think I have detected a new binary choice: arrogance or ignorance. Compared with previous SoFAs, the 2017 offering is so devoid of useful information that one can only conclude that either DfT doesn’t want us to worry our pretty little heads about the railway’s future funding, or it doesn’t have a clue what to do.
According to the DfT press release ‘around £48 billion will be spent on the network over a five-year period, from 2019 to 2024, including more maintenance and a huge uplift in renewals to increase reliability and punctuality for passengers’. Speaking subsequently at a Railway Industry Association function, Transport Secretary Chris Grayling cautioned that not all the money would be spent through Network Rail.
While the SoFA includes funding for the early stages of developing new rail schemes, ‘in a departure from the previous approach, the Government will allocate funds separately for major upgrades following a new process to ensure they are deliverable and secure the best value for money for the tax payer’. We await more detail on this new process promised for ‘later this year’.
Table 6 gives the bare numbers we have to work with.
At face value, expenditure is roughly £10 billion more. But let’s take a closer look at that CP5 expenditure figure. While the planned expenditure was indeed £38.3 billion, various plans have gang agley (Table 7).
First of all, additional expenditure on renewals was authorised, bringing the total to £14 billion.
Then, even though £3.7 billion of renewals has been deferred to CP6, according to ORR, the work actually done has cost £800 million more than budget.
Finally, we had the enhancements overspend crisis followed by the 2015 review by newly-appointed Network Rail Chairman Sir Peter Hendy. This saw another £2.5 billion added to the enhancements budget and sundry schemes paused, deferred to CP6, or cancelled.
Most recently, the Treasury created a £450 million ring-fenced fund, entirely outwith the SoFA, to be spent on Digital Railway schemes in CP6. But let’s not complicate things.
Table 8 adjusts the expenditure in DfT’s original table to allow for deferred expenditure.
The deferred enhancement expenditure is an informed guess – mostly electrification, but should be on the low side.
This correlates with DfT’s increase in Direct Grant. If we take £4.7 billion off the CP6 figure to cover renewals and enhancements deferred from CP5, we get £30 billion ‘new’ support, or an increase of around £10 billion.
So what does the expenditure budget for CP6 look like? Well DfT wants to keep us guessing, but I’ll give it a go on the usual basis of trying to be approximately correct rather than precisely wrong.
In its advice to the Transport Secretary on the SoFA for CP6, ORR said it had looked at renewals from both sides now, or rather top down, bottom up and sideways, and the answer seemed to be £21 million for the five years.
For CP5 Network Rail planned to spend £4.76 billion on maintenance after efficiency gains. The SoFA says ‘more’ maintenance in CP6, so let’s assume a 25% increase, which rounds up nicely to £6 billion.
Support & Operations was budgeted at £8.6 billion for CP5. No doubt ORR wants to see it come down. So I’ll call it £9 billion to be on the safe side.
Table 9 shows what happens if you bring all these numbers together and reveals around £7 billion looking for a home. My working hypothesis is that most of this covers ongoing enhancements. More could be spent on maintenance and renewals, but the existing increases are going to challenge the capacity of the supply industry – at least initially.
While DfT says that enhancements in CP6 will be funded separately, Table 10, taken from the November 2015 Hendy Review, shows that there are multiple schemes already underway, or being planned, which will require funding in CP6. Obviously some of the major projects have died the death, but many others on the list, though minor, are essential.
Rather like the till roll for a Saturday shop, the many small items in Table 10 could add up to £7 billion. When ORR publishes its assessment of Network Rail’s expenditure in a year’s time, I promise to republish Table 9 and we can all have a good laugh