Recommendation 2

HM Government Acknowledged

The Government recognises the Committee’s concern that instability in rail investment can increase costs and reduce efficiency. Sudden and unexpected changes in scope or sequencing can have real impacts on the supply chain and on delivery performance. However, the government does not accept that rail investment in England and Wales has been characterised by systemic “boom and bust” cycles in overall funding, though there is no doubt that the perception of such cycles is clearly felt by parts of the supply chain, as shown in evidence to the Committee. The exception might be in rolling stock, where the particulars of the commercial and policy environment have led to inefficient stop-start procurement and manufacturing orders. The forthcoming Rolling Stock and Infrastructure Strategy, which takes on board input through engagement with key stakeholders and wider industry, will set out how Great British Railways will smooth demand and move towards a steady pipeline of work, including an indicative programme for the manufacture, refurbishment and overhaul of passenger trains, alongside the enabling infrastructure works required to support them. The operations, maintenance and renewal of the railway have been supported by successive multi-year regulated settlements, developed through the established Periodic Review process, including the High Level Output Specification (HLOS) and Statement of Funds Available (SoFA), establishing clear Control Periods. This has provided a stable and predictable funding baseline for the core stewardship of the railway’s assets, a key challenge will be to extend the principles of this to address the uneven profile of rolling stock investment, where these benefits have not historically been realised. We expect this multi-year funding approach to be continued for operations, maintenance and renewals activities by the Funding Period process as we reform the railway and establish GBR. Notwithstanding the overall stability that this can provide, there is evidence (including provided to the Committee in this inquiry) that the transitions between and mobilisation of funding periods can be experienced by parts of the supply chain as volatility in workload. That volatility can clearly contribute to a perception of “boom and bust” in some parts of the industry, even where overall funding baselines are stable. We must be clear that while multi-year settlements provide this stable funding baseline, they should not and do not guarantee that every part of the supply chain has a continuously full order book at all times; effective delivery requires a balance between predictability, affordability and deliverability, as well as timely mobilisation and release of work. The Government is, therefore, already examining the early delivery experience of Control Period 7 through existing mobilisation, assurance and performance review activity undertaken by the Department, Network Rail and the ORR. We recognise the concerns about the “slow start” to the Control Period set out in the evidence to the committee and by the supply chain. While we are clear that some fluctuation in the types of work and progress of work banks is inevitable, we also understand that there needs to be transparency and action taken to address these concerns. We are therefore considering the phasing of work, particularly at the start of the Control Period, the volatility of spend within Control Periods, and whether these effects are systemic or capable of being better managed. One of the issues in this is the nature of the settlement for the operation, maintenance and renewal of the network. A settlement agreed on cash terms well ahead of the start of a 5-year funding period will be inherently vulnerable to the impact of any inflationary outturn that is materially different to the initial forecast, which may affect its delivery. However, although this is a known issue, treatment of the settlement in this way is in line with the standard approach across Government. Looking beyond control periods and towards its major projects, the Government has set out a clear, continued long-term commitment to delivering the new HS2 line between London Euston and the West Midlands. This is supported by a significant funding commitment over the Spending Review period, enabling continued progress during a comprehensive programme reset that aims to deliver the remainder of the railway safely and at the lowest reasonable cost. In line with this long-term vision, the Government recently set out its plans for Northern Powerhouse Rail, as well as its ultimate intention to deliver a new line between Birmingham and Manchester. £1.1 billion of funding has been made available for NPR over the Spending Review period which will allow progress on planning, development and design, and unlock benefits from the 2030s. Enhancements funding, by its nature, is discretionary and must be prioritised within finite fiscal envelopes. Variations in the deployment of that fundi