RIA Submission to Public Accounts Committee - Costs in the English rail system

6 May 2021 Public Accounts Committee House of Commons London SW1A 0AA Dear Committee Members

Kings Building, 16 Smith Square, London SW1P 3HQ +44 (0)20 7201 0777 ria@riagb.org.uk www.riagb.org.uk

I am writing on behalf of the Railway Industry Association (RIA), to make a submission to your inquiry on the Overview of costs in the English rail system, following the National Audit Office’s recent report.

RIA is the national trade body for some 300 UK rail suppliers, with members representing a large proportion of the rail industry by turnover and reflecting a great diversity of disciplines within the rail sector. Our membership comprises both large multinational companies and also SMEs (around 60% of the membership), based right across the UK. Rail is vital to the country’s economy – every £1 invested in rail generates £2.20 in GVA – is a low carbon mode of passenger and freight transport, provides jobs and investment to communities across the lengths and breadths of the UK, and is an area of exports strength. Despite the challenges of the pandemic, rail has delivered during lockdowns and restrictions and has a key role to play in driving a green economic recovery as the economy opens up, supporting the Government’s ‘levelling up’ agenda.

As a supply chain, we are aware that rail improvements must be delivered at good value for the taxpayer and there is much work across the industry going on to ensure UK rail continues to deliver to budget and improve efficiency.

For this inquiry, we have outlined below several key issues for the supply chain where significant costs can arise and where progress is being made in ensuring better value for the UK taxpayer. As the representative body for rail suppliers, we do not take a view on ownership or the broad structure of the rail industry, and are awaiting the recommendations of the William Rail Review White Paper, due to be published shortly.

1. Renewals RIA has long campaigned to smooth out the peaks and troughs in funding for renewals. Renewals of the rail network are funded in five yearly cycles, known as Control Periods (CP). Work is usually concentrated into the middle years of the CP creating a ‘boom and bust’ profile of work for suppliers. This inconsistency in work means the industry has to prepare for a significant ramp up in work before seeing facilities shut, job losses, multi-national companies moving to other sectors or overseas and SMEs struggling to find work. It is therefore vital that renewals are smoothed out over CPs and major rail projects are considered in relation to other work across the UK. 2. Enhancements In the current funding cycle, Control Period 6, enhancement decision-making was moved to the Department for Transport (DfT). Enhancements are now decided through a stage-gate process known as the Rail Network Enhancements Pipeline (RNEP). Although the DfT said the RNEP would be updated every year, it has now been more than 18 months since it was last updated in October 2019, providing a lack of visibility for suppliers for upcoming work. This impacts their ability to plan and invest for upcoming work. Enhancements also need to be delivered consistently over the project life cycle, as with renewals. See also Project SPEED below.

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3. Electrification One area where the industry has also felt the impact of a ‘boom and bust’ approach to investment is electrification. Claims have often been made in the past that electrification can be costly, but this argument focuses on a few past problem projects, neglecting more recent schemes delivered to time and to budget. As demonstrated by RIA’s Electrification Cost Challenge report in March 2019 1, the industry has learnt clear lessons from previous projects, including the need for a smooth profile of consistent work. The report showed that with a rolling programme, costs could be driven down by up to 50% of past problem projects, notably the Great Western Electrification Scheme.

In the UK, less than 40% of the network is electrified, whereas in other comparable countries like Germany it is over 60%. Recent assessments show that c.90% of the network will need to be electrified in order to achieve net-zero carbon and there is therefore an imperative to start work now. Operational running costs for electrified railways are also lower. This is important both for carbon reduction but also to retain skills and capability, as there are no significant electrification projects currently in construction.

RIA is therefore calling for a rolling programme of electrification and fleet orders of low-carbon rolling stock now, to enable cost effective delivery, reach zero carbon and reduce longer term costs.

4. Digital signalling Likewise, whilst Network Rail (NR) – which owns, operates and develops the UK’s railway infrastructure – has developed a long-term deployment plan for digital rail; currently only East Coast Mainline investment has been funded. Cost effective delivery would require a rolling programme scaling up to perhaps between three to five electrification and digital projects – thus enabling the development of UK supply chain competitiveness and capability.

5. Rolling Stock Recent franchising policy has encouraged the provision of new rolling stock. However, high-quality upgrades to existing trains also have a critical role to play in transforming the passenger experience. The refurbishment market is currently seeing little work, threatening the survival of a key component of the UK rail industry. A positive decision on decarbonisation would help both these markets with the need for new or refurbished electric rolling stock for newly electrified routes as well as battery and hydrogen rolling stock for routes not being electrified.

Rolling stock leasing companies and maintenance service providers deliver a valuable service to the rail industry and wider economy. They offer significant technical expertise and valued asset management of train fleets, often investing in innovative technologies and services that have a direct benefit to the passengers who use their vehicles.

6. Procurement In March 2021, RIA responded to the Government’s Procurement Green Paper published by the Cabinet Office 2. We welcomed the proposals in the Paper, which align with the Construction Playbook, including committing to the publication of procurement pipelines, ‘whole life value’ and delivery model assessments (‘make or buy’). These proposals have the potential to reduce costs and increase the competitiveness, sustainability, and productivity of the supply chain. In our response, we expressed concern about the proposal to limit framework agreements to four years as longer frameworks enable investment in innovation, assets and capability delivering associated efficiency benefits and helping to smooth ‘boom and bust’ in the rail industry.

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See https://www.riagb.org.uk/RIA/Newsroom/Stories/Electrification_Cost_Challenge_Report.aspx See https://www.riagb.org.uk/RIA/Newsroom/Publications%20Folder/Procurement_Green_Paper.aspx

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7. Rail Project SPEED The costs of delivery of new projects, enhancements and maintenance of railways is heavily dependent on the processes implemented by NR and the Department for Transport (DfT). As the Committee may be aware, NR and the DfT recently launched its Rail Project SPEED (Swift, Pragmatic and Efficient Enhancement Delivery), which seeks to find ways to cut the cost and time of rail project delivery. SPEED is looking at both Early Contractor Involvement (ECI), and strategic partnerships with the supply chain. RIA supports this focus on ECI and partnership working as a means to maximise productivity. This approach is most effective when combined with a focus on and understanding of the outcomes the project is aiming to achieve, all too often suppliers are involved too late and this can stifle innovation and add costs.

NR’s ‘GRIP’ (Governance for Railway Investment Projects) process manages and controls investment projects, is complex and adds time for project delivery. This is being replaced by ‘PACE’ (Project Acceleration in a Controlled Environment) which NR hopes will remove some of this complexity. Both Project SPEED and PACE are positive steps which will help cut the time and costs associated with rail projects. These will require all three parts of the industry to collaborate – Government, clients and supply chain – to be a success.

8. Innovation Innovation is essential to the railway industry and can drive down costs and increase efficiency, with new ways of working and construction methods. As a sector rail is already innovative, which a wide range of projects in the pipeline, focusing on a range of areas – from cutting carbon emissions and resources required in construction, to improving service reliability and improving the customer experience. However, innovation funding across the industry can be fragmented – hence RIA has called for an ambitious innovation strategy for rail, including considering the procurement processes for innovation. 3 As an example of the potential of innovation, the UK has a significant capability in condition monitoring which can support a reduction in maintenance costs which represent 19% of total infrastructure and rolling stock costs 4.

9. Long-term 30-year strategy Finally, RIA calls for a long-term 30-year strategy for rail. We support an all-assets Whole Industry Strategic Plan (WISP) to ensure balanced investment and rolling programmes of work. This is the most cost-effective way to deliver, maintain and run the railways in the interest of passengers, freight customers and taxpayers. _______________________ RIA is happy to provide further information on any of the above issues, or to meet to discuss any matters associated with the Committee’s inquiry. Please do not hesitate to get in touch with RIA Policy Executive Isabella Lawson if you have any further questions, at Isabella.lawson@riagb.org.uk and 07964 263836.

Yours sincerely, Kate Jennings Policy Director, Railway Industry Association

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See https://riagb.org.uk/RIA/Newsroom/Publications%20Folder/Subsidy_Control_Consultation.aspx Office of Rail and Road (ORR), 2020 - See p.11 https://www.orr.gov.uk/sites/default/files/om/cost-benchmarking-ofnetwork-rail-annual-report-year-1-of-cp6.pdf 4

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