This is a sponsored post from the Railway Industry Association. Darren Caplan is its Chief Executive.
Every day across the UK’s rail network a continuous process of vital track renewals and replacements and signalling upgrades and repairs is undertaken. The purpose is to keep trains moving and keep passengers and freight services running smoothly and efficiently.
These infrastructure improvements and upgrades are funded by central government, through a budget allocated to Network Rail which in turn contracts the rail supply industry. But the money for these renewals is running out, which is why the Railway Industry Association – the trade association for the UK rail supply industry, which represents 200 members, employs over 30,000 staff and turns over more than £6 billion per annum – urges the Chancellor to act quickly to avoid a funding cliff edge.
The UK’s rail network budget is allocated to Network Rail on a five-yearly cycle known as a ‘Control Period’. We are currently heading towards the end of Control Period 5 – which ends in March 2019 – and in common with the previous five-year cycles are seeing something of a feast and famine – early overspend in the early years followed by underspend towards the end. As anyone involved in infrastructure projects will tell you, this is not an efficient way to operate.
An estimated shortfall of £500 million in Network Rail’s budget over the final 20 months of Control Period 5 is already translating into significant falls in renewals demand for contractors, primarily in the track, signalling and consultancy disciplines. Those of us in the rail supply sector are experiencing a sense of déjà vu: the UK railway suffered damage at the end of Control Period 4 when a failure to look ahead into – and commit to – Control Period 5 funding caused increased costs, and project delays on the UK railway network.
This avoidable hiatus between funding cycles where demand falls off and then ramps up creates uncertainty within the supply chain and is a disincentive to invest in new technology, processes and people – all of which means that costs are up to 30 per cent higher than they should be. That is bad for the rail supply sector, bad for the Government, and bad for the taxpayer and travelling public.
The problem we’re facing currently is particularly acute, because of high expenditure in the early years of the Control Period and partly because of increases in renewals unit rates. As a result, suppliers are reporting falls in demand of between 20 per cent and 45 per cent: this is already resulting in redundancies, short-time working, and reduced or frozen graduate and apprenticeship recruitment in the sector.
Furthermore, it is possible that some smaller or niche suppliers may not survive until Control Period 6 (which starts in April 2019) and some larger suppliers may choose to use resource in areas where there is a more stable workload – especially in the resurgent overseas railway market. This would reduce the supply chain available to Network Rail and potentially increase future costs.
Policy-makers must be pragmatic and explore what work (and at what cost) could be brought forward from Control Period 6 to smooth this inefficient and uneven demand.
So we hope the Treasury, and a supportive Chancellor, is willing and able find a way to address the current shortfall. Moving forward to a suitable funding mechanism needs to be found which avoids another repeat of the current situation again in five years’ time.
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