Comment: Why won’t taxpayer-backed Network Rail buy British?

By Anna Matthews

Network Rail was formed in 2002, following the collapse of Railtrack plc.  It is a private company limited by guarantee.  Its annual income (£6.2 billion to March 13) is funded via track access charges from the Train Operating Companies, government subsidy and by raising bonds in the capital markets.

Its bond debt is currently £31.7 billion and it is planned to increase to £49.6 billion by March 2019.    The debt is AAA-rated with a direct and explicit UK government guarantee,  therefore ultimately you and me as taxpayers guarantee the debt – but it is currently 'off balance sheet' for the government.

The unintended consequences of this special status  left Network Rail in the position of being largely unaccountable for its actions.  The issues are compounded by its position as a monopoly customer; it wields incredible power over strategic direction, the market, supply base, technology and culture.  It has neither shareholders nor is it subject to direct government intervention or parliamentary scrutiny, the National Audit Office or the transparency afforded by the Freedom of Information Act.  

The Office of Rail Regulation (ORR) has proven itself ineffective to ensure performance.  Network Rail missed all of its targets for the punctuality of passenger services in England and Wales in 2012-13.

The ORR said: "The reliability of information Network Rail holds on the condition of its tracks, bridges and other assets is not as good as it should be….. ORR is considering introducing regulated targets to increase the pace of improvements."

Even the then rail minister, Norman Baker, said in September 2013 that he was "dismayed" at the extent to which Network Rail was letting down passengers.

It’s not just performance but also efficiency that is a serious issue for passengers and taxpayers alike.  Network Rail needs to deliver a performing railway at an acceptable cost.     It agreed to make a 23.5% efficiency saving against agreed outputs over the five years to April 2014.

In September 2013 the ORR assessed that: "Network Rail is unlikely to deliver the potential 23.5% efficiencies identified for operations, renewals, maintenance and asset management by the end of CP4 [March 2014]."

The  Roy McNulty Rail Value for Money Study (May 2011) was critical of the performance of GB rail, which it stated was 30% more expensive than comparative European railways.   Indeed, that will have come as no surprise to most customers who consider rail poor value for money.  Today Network Rail's day-to-day operating costs are funded 64% (£3.99 billion) by the taxpayer.  Full industry costs are funded 25% by the taxpayer and 75% by fares so those views on value for money will crystallise further as tax subsidies reduce.

Network Rail appears to have convinced itself that there is no problem.  McNulty's study has been all but buried as it squanders taxpayers' money.  Meanwhile in these tough economic times, government departments faced with the need for austerity have been forced to make some very tough decisions.

The good news is that on September 1st, Network Rail will be brought back onto the public accounts (backdated to 2004). There is currently a debate on how this will affect the way that it is run.  In its memorandum of understanding, which gives some detail of how it will work together with government, Network Rail says it expects "the company's business to continue as usual". At best the MoU acknowledges that some "small changes" will be necessary when the company becomes accountable to parliament for its finances.

Business as usual is not acceptable.  DeltaRail urges government to ensure that it gains all powers appropriate to properly supervise a taxpayer-funded and guaranteed organisation; including oversight by parliament, the National Audit Office and the transparency delivered through the Freedom of Information Act.   It's not a moment too soon to enable essential scrutiny on how Network Rail will spend £38.2 billion of our money over the next five years. 

We particularly welcome transparency and accountability on strategic procurement decisions that impact on passengers, taxpayers and suppliers.  Decisions made now will affect the cost and performance of the railway for many years to come, putting the recovery of our economy and the UK's ability to compete on an international stage at risk. One such decision, requiring urgent examination, is the traffic management programme, their programme to introduce "new, automated technology" for railway operations. 

Network Rail commenced traffic management procurement in 2009. Five years on, the scope has diminished to meet the capabilities of overseas produced technologies (German, Italian and Japanese), architected in the 1990s.   With their current plan, the UK will be burdened with near obsolete proprietary technology that will stifle innovation and limit competition through vendor lock-in.  It has the characteristics of the failed BBC Digital Media Initiative; except that it is significantly bigger with £550 million planned spend to 2019. 

It is clear that Network Rail has learnt nothing from failed public sector IT procurement nor do they adhere to the government ICT Strategy published by the Cabinet Office in 2011.  Technology is advancing at pace and Network Rail should embrace the technology revolution that has transformed efficiency and performance in virtually all other industries, e.g. manufacturing, power generation and distribution, communications, logistics, oil & gas, banking and retail.

The time has gone for bespoke systems that are expensive to build and maintain, and slow to take advantage of technology progression. Traffic management system rollout commences in 2017 (assuming a return to plan) and rollout will be 80% complete by 2031.   With a 20 year operational life, we will still be using 1990's technology in the 2050's. And this is not the odd, remote and somewhat quaint Victorian signal box – this is the very heart of railway operations. It is inconceivable that performance, tied to expensive over 30-year-old technology, can deliver an affordable and responsive passenger-centric railway.    

There is an alternative. DeltaRail's systems, using 21st century technology, can be rolled out earlier  –  saving £1 billion of taxpayers' money, improving performance sooner and ensuring that the UK has a railway fit for the digital age.    As the largest provider of computerised signalling control systems in the UK, with 30 year's relevant experience, we are well positioned to have an informed view.  We are also the top performing Network Rail supplier (defined by its' very own league tables).

When Network Rail makes decisions to favour overseas companies, it impacts on UK jobs and the UK economy.    No UK company wants any favours, but public funds should be spent with accountability and transparency; taxpayers need the assurance that UK companies had a fair crack of the whip.  DeltaRail is a Derby based company with 250 highly skilled staff. 

Treasury policy 'reducing the deficit and rebalancing the economy' states that: "Rebalancing the economy is not about trading the success of one sector for another. It's about spreading our success more evenly – both geographically and by sector – and supporting the world class industries we already have, as well as the new ones that we're developing."

The chancellor last week said that Britain is not "exporting enough" and his upcoming Budget will ensure that 'Made in Britain' is exported around the world.

Government has been looking at export opportunities in the rail market and rated UK capability in rail control systems in the highest category for both capability and investment suitability to generate exports.  By giving UK companies a fair hearing, Network Rail would provide a reference site for UK expertise and support the export potential in a growing rail world market. 

We are in the indefensible situation where Network Rail, funded by the taxpayer, will buy technology designed and manufactured overseas.  Only installation will be UK driven and the opportunity to build a long-lasting export capability will be lost. The superior UK expertise and acknowledged leading position may disappear forever.

It is not too late for Network Rail to change approach on traffic management.  It contracted only prototypes and must not now walk blindly into contracting for systems purchase.  If contracts are signed the £1 billion saving will be lost and the UK will be locked into a suboptimal foreign technology, negatively affecting passengers and taxpayers for decades to come. 

The government should ensure that it has sufficient levers to compel Network Rail to act in the interests of passengers, taxpayers and UK PLC.

Anna Matthews is CEO of DeltaRail. She joined in January 2007 after 13 years with Invensys PLC.

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