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Funding cuts
for Crossrail services to be extended from
Maidenhead.
And, of course, there is the widelyapplauded
electrification of the Great
Western. A whole fleet of new Hitachi
intercity trains are to replace HSTs and
refurbished Class 319 commuter trains will
be cascaded from First Capital Connect as the
new Thameslink fleet is delivered. Or not.
The IEP order is under review. The
Thameslink order is delayed. There is a
question mark over electrification. The
government is looking for efficiency savings
on Crossrail. And it is looking for savings on
the Reading project. Funding for town centre
road improvements associated with the work
has already been withdrawn.
Reading is the second busiest station
outside London. It’s a notorious bottleneck.
Delays here can have knock-on effects all
over the country. And if bits of this overall
transformation are dropped, there may be
implications for the value-for-money of
the other elements. The government has
indicated that even schemes representing
excellent value may no longer be affordable.
The number of passenger journeys
per year has grown by 59 per cent since
privatisation. Train mileage has increased by
24 per cent, and revenue from passengers has
risen by 75 per cent. So the assets are being
worked harder. On that basis the railway is
providing improved value. But costs have also
risen sharply. The industry received £5.2bn
from taxpayers last year: £2bn a year more
than in 1996-97. Spending per train mile is
40 per cent higher, and 10 per cent higher
per passenger mile. Network Rail’s debts are
spiralling. So it’s not financially efficient.
The Department for Transport’s
spending settlement will become known
when the result of the spending review is
announced on 20 October. The review will set
departmental spending for the following four
years. This year it has a budget of £13.6bn.
When the axe falls in the Thames Valley,
how much of the investment will survive?
The station upgrade should be safe: work
has started and it is an essential part of all
the other changes. But everything else is
vulnerable to delays at the very least.
That’s not much comfort for the
passengers pouring through the congested
station ticket barriers. They already know
fares will rise by at least six per cent in
January, and the transport secretary, Philip
Hammond, has hinted strongly that they
will be allowed to rise higher. In the small
print of the franchise agreements, it says
that if regulated fares are permitted to rise
beyond the previously agreed rates, then
that additional revenue goes straight to
government. For a Department facing cuts
of between 25 per cent and potentially 40 per
cent, that extra revenue could seem attractive.
And the previous policy of encouraging
drivers off the M4 and onto trains instead
to get to work? The one espoused by John
Prescott so loudly in 1997 when he was
running transport? Despite its environmental
credentials, it seems it has been forgotten.
‘Everything else is vulnerable to delays
at the very least’
Feeling the pinch by
Neil Blake
While passenger numbers on Britain’s
network continue to grow, operators
have by no means been left unaffected by
the downturn. In many cases, growth in
revenue from increased passenger numbers
has not met forecasts and a number of
operators have been left exposed. The most
high-profile of these has been National
Express, which was forced to give up the
East Coast last year. Others have suffered by
not being covered by ‘cap and collar’.
The previous government’s High Level
Output Specification (HLOS) to ease
overcrowding has been another casualty of
the recession. The programme to procure
1,300 new carriages, which would have
boosted the UK’s fleet and reduced the
strain on some of the country’s busiest lines,
has stalled and is unlikely to be re-started in
its original form by the new government.
The arrival of the coalition government
has certainly marked the start of a period of
political change for the UK. The previous
government had already declared it was not
appropriate to green-light the Inter-City
Express project, and this and other huge
procurement projects currently in the
pipeline, namely Thameslink and HLOS,
are all being closely scrutinised. Whatever
decision is made, they are likely to be
delayed for some time.
Although the economic recovery is
under way, operators are likely to continue
to feel the squeeze in terms of managing
costs while maintaining a high level of
service. But operators are far from resting
on their laurels and overall passenger
satisfaction is still very high. New entrants
to the market, such as Deutsche Bahn, are
emerging and this is set to continue. Further
possible consolidations of operators is also
likely, as transport companies position
themselves for some of the high-profile
franchises, such as the East Coast Main
Line, which are due for tender.
The current franchise review, which
is due to report at the end of the year, is
expected to call for longer franchise periods
and more autonomy for operators. But
many speculate that we will see a scenario
where most franchises are only viable for
those operators with deep pockets and
larger financial backing.
We’re also likely to see further
‘sweating’ of the current fleet over the
coming years through life extension
and even ‘bi-mode’ initiatives. Wider
electrification is also desired, although
implementation is likely to be delayed.
Building the right financial foundations
will be key if operators are to survive and
thrive in an ever-more competitive market;
and banks will need to play a crucial role
in supporting them whatever challenges
lie ahead. Rail is a vital component of the
country’s transport network and is an
important driver for the economy.
NEIL BLAKE IS THE DIRECTOR OF RAIL
CAPITAL, PART OF THE SPECIALIST RAIL
TEAM AT LLOYDS BANKING GROUP, WHICH
WORKS ON ROLLING STOCK FINANCING
AUGUST 2010 PAGE 27