Government needs to stop the 'boom and bust' approach to rail funding

Posted On: 
22nd September 2017

Chief Executive of the Railway Industry Association Darren Caplan urges the Chancellor to act quickly to avoid a funding cliff edge by March 2019.

The structure of rail funding adds up to 30% to costs, affecting jobs, investment and passenger and freight services.
Credit: 
Railway Industry Association

Over the past 20 years, the number of passengers using the railway has doubled and freight has increased by 80%. And in the next 25 years growth is set to double again. However, as the railway system gets used more and more, and the infrastructure system gets commensurately older, those working to keep our rail system running smoothly and efficiently do not have an easy task.

A factor that makes this situation particularly difficult is the railway funding structure. Railways in the UK are funded over five-year ‘Control Periods’ (CPs). There is often significant overspending at the start of the funding period, followed by a sharp fall-off in activity towards the end, and this creates a ‘boom and bust’ cycle within the rail sector, as companies expand to meet high demand, and then need to retrench when the work dries up.

We at the Railway Industry Association (RIA) – the trade association for the UK rail supply industry, which represents some 200 members in a sector which employs up to 240,000 people and contributes £11 billion GVA per annum – have been urging the Chancellor to act quickly to avoid a funding cliff edge by March 2019, when CP5 ends. Data provided last December by the National Infrastructure Pipeline, the Government’s assessment of the planned investment in UK economic infrastructure, shows a dramatic fall-off in railway maintenance and track renewals work towards the end of CP5. For rail sector suppliers who build, maintain and enhance the railway, this drop off will significantly reduce confidence to invest in processes, products and people as companies cannot guarantee future work.

Across the industry we are already seeing examples of redeployment, short-time working and the freezing of graduate and apprentice recruitments. Inevitably, the shortfall has also led to redundancies at a time when we are struggling to meet the skills gap in the engineering, science and construction labour markets. SMEs will find this period of time particularly tough due to having a less visible longer term workload; and some of these specialist companies, should they fail to survive, will be very hard to replace.

This stop-start funding cycle also adds up to 30% to costs, fundamentally making it more expensive to run the rail network, meaning a worse performing railway and higher costs for the taxpayer. Ultimately passenger and freight services could suffer. It is a situation where no one wins.

So we need to act quickly to avoid this damaging scenario. The funding cliff edge could be avoided by bringing forward £500 million from CP6, the next funding period, helping to smooth the peaks and troughs of rail funding, and ultimately ensuring we retain skills, jobs and specialist companies whilst reducing costs for future work.

However, bringing forward this funding is only a solution to the current CP5 shortfall. We are also calling for the Department for Transport to reconsider the structure of rail funding. This does not require root and branch change – we absolutely do not want a return to annualised budget-setting which was hugely inefficient – but we do propose that the industry reviews the arrangements to ensure consistency throughout the Control Period.

Bringing forward the necessary funding for the end of CP5, and seeking a more long term solution to the boom/bust funding process, would deliver huge benefits for our railways, for those companies that work to maintain and improve them and – most importantly – for the passengers and freight companies who use them every day. We urge the Government to work with us on this, to ensure together we can build the world-class railway system we believe the UK deserves and which the rail supply sector can certainly deliver.

RIA will be holding Rail Interviews at Labour and Conservative Party Conferences:

  • At the Labour Party Conference Rail Interview, PoliticsHome Editor Kevin Schofield will interview Shadow Secretary of State for Transport Andy McDonald MP. The Rail Interview will be on Tuesday 26 September, from 12:45 until 14:00, in Durham Hall – Argyle at the Hilton Brighton Metropole (inside the secure zone).
  • At the Conservative Party Conference Rail Interview, PoliticsHome Editor Kevin Schofield will interview Rail Minister Paul Maynard MP. The Rail Interview will be on Sunday 1 October from 17:30 to 18:45 in the Derby Suite, at the Midland Hotel (again inside the secure zone).

These two events are held in partnership with ABB, Alstom, Colas Rail, Rail Supply Group, Siemens and VolkerWessels.

Follow RIA on Twitter @railindustry for full updates throughout the event.