In 2013/14, total government funding for the railway industry was increased by 4% to £5.3 billion. This is the highest level recorded since 2007/08, but remains below the peak of £6.3 billion in 2006/07. The rise in total government investment in recent years is largely due to increased subsidies for major rail projects such as Crossrail. Indeed, in 2014, government support for major rail projects reached almost £1.7 billion, up from just £38 million in 2010. Capital spending on Crossrail made up £1.1 billion (65%) of the total in 2013/14.

Figure 1: Government railway funding, 2010-14

Source: MBD analysis of Department for Transport, Transport Scotland and Welsh Assembly data

The company reports that it delivered increased volumes of track, signalling and structures renewals during the year, utilising new technology where possible and working more collaboratively with train operators following the devolution of decision making to routes.

In 2013/14, track accounted for 27% of renewals expenditure, having increased by 29% in nominal terms in the year. Spending on structures renewals increased substantially in 2013/14, reaching £821 million - representing the second largest area of renewals expenditure at 22%. The increase was partly due to expenditure on works accelerated from CP5 and remediation work required at a number of sites following the extreme weather of 2012/13. Investment in signalling represented 17% of total renewals expenditure in 2013/14, down from 22% in the previous year. Nonetheless, signalling renewal expenditure still rose by 6% in 2013/14.

Figure 2: Rail Renewal Expenditure by Asset, 2013/14

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Source: MBD analysis of Network Rail data

The strong increase reflects spending on major projects including Thameslink, Reading Station Area, Birmingham New Street Station, Crossrail and electrification. Investments have also been made to improve train performance, line speed, freight access, platform lengths, power supply and disabled access.

The Thameslink programme led total CP4 enhancement expenditure in England and Wales, accounting for 38% over the control period. However, spending on the Thameslink Programme by Network Rail has been reduced since a peak of £718 million in 2012, with £371 million invested in 2014. The lower recent spend is due to some work on the project being deferred to CP5 as the programme, which was originally expected to be completed in early CP5, has been rephased until later. Other major enhancement projects include Reading (accounting for 8% of CP4 spending) and East Coast Main Line improvements (7% of CP4 spending).

According to the ATOC, some 47% of the total rolling stock fleet in use in 2014 has been built since rail privatisation. By 2005/06, the average age of rolling stock had fallen to just under 13 years, although it has since risen to more than 19 years in 2013/14. While the average age of rolling stock has increased in recent years, this trend will reverse during CP5 because of the approximately 3,000 new electric vehicles due to be delivered, including 2,250 by the Intercity Express, Thameslink and Crossrail programmes. This will both increase fleet size and decrease average rolling stock age.

In October 2013, the ORR published its final determination for Network Rail’s outputs and funding for the control period 2014-19 (CP5). According to the final determination, Network Rail can spend more than £38.3 billion on maintaining, renewing and improving the rail network, which is up by 2% on Network Rail’s spending plans. The ORR has set Network Rail a spending limit on total capital expenditure of £24.9 billion for the CP5 period 2014-2019, up from £24 billion during CP4. Investment in enhancement schemes accounts for 51% of projected CP5 capital expenditure, with renewals work accounting for the remaining 49%.

Figure 3: Forecast capital expenditure for CP5, by type, 2014/15-2018/19

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Source: Office of Rail Regulation

Crossrail will deliver a new highfrequency rail service and supporting infrastructure for London and the South East, with 13 miles of twin tunnels and eight new underground stations across central London. Services will run from Maidenhead and Heathrow in the west to Shenfield in the east and Abbey Wood in the south east. Work on the project started in 2009. The central tunnel will open in December 2018 with full services commencing in December 2019.

HS2 Ltd has already started the tendering process for significant Early Contractors Involvement contracts despite the hybrid bill, which is effectively the planning application for the project, not being passed through parliament yet. The spending plans by Network Rail for CP5 do not take into account the impact of High Speed 2 on the network as it is insufficiently developed to assess its impact. However, Network Rail states that HS2 could have a significant impact on its plans for CP5 and in the long term. Further proposed new rail lines include Crossrail 2, a new line running through London and into Surrey and Hertfordshire, and HS3, a rail link between Manchester and Leeds.

Figure 4: Cost of enhancement projects in England & Wales during CP5, 2014/15-2018/19

(£ billion)

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Source: Office of Rail Regulation

Network Rail’s funding and delivery outputs are agreed in five-year blocks called control periods, currently CP5, April 2014-March 2019. The process by which funding is determined is called the periodic review (PR), which also looks at how Network Rail should work more closely with train operators, suppliers and others to reduce costs and deliver more for customers. The latest periodic review, PR13, continued until autumn 2013, when the ORR set its final determination for CP5. This determined funding and outputs for the control period CP5.

The ORR estimates that there will be a 14% increase in passenger demand over the next five years, while a 3% annual rise in tonne kilometres of freight to 2033 will put additional strain on the system. According to DfT forecasts, total passenger miles on the rail network in Great Britain are expected to increase by 13% by 2020 compared to 2011 and 46% by 2033. Furthermore, much of the infrastructure that supports the network is already nearing capacity limits, with some commuter services into London and other regional centres oversubscribed. Continued investment in rail infrastructure will be necessary over the coming years to deal with rising demand and the strain placed on the rail network.

Bombardier Transportation is currently the only main train manufacturer in the UK, although Hitachi Rail Europe is due to open a new train manufacturing facility in County Durham in 2016.

In February 2014, Bombardier was awarded a major contract by the DfT covering the supply, delivery and maintenance of 65 new trains and a depot for the Crossrail service. The contract is reported to be worth £1 billion, and will be built at the company’s Derby facility. Meanwhile, the Hitachi-led consortium Agility has won orders to supply 866 carriages for the Intercity Express Programme, most of which will be built at the company’s new UK factory.

The early procurement process is to help suppliers plan ahead and start building towards delivery. Some 60% of all contracts during CP5 will be frameworks, with 27% alliances and the rest put out to competitive tendering. The move away from competitive tendering is part of Network Rail’s strategy to have close longterm relationships with contractors, giving them more longterm certainty of work and, in return, asking them to invest in skills. However, this new approach also means that a number of Network Rail’s current tier one contractors are likely to lose work as Network Rail works with fewer suppliers.

This was highlighted by the severe delays passengers faced at King's Cross and Paddington stations over the festive period in 2014 due to overrunning engineering works, which Network Rail blamed on contractor failings. A report by the Commons Transport Select Committee, published in January 2015, found that the "unacceptable disruption was a worrying sign for the capacity of Network Rail to manage multiple, complex engineering projects simultaneously". The report added that “Network Rail must demonstrate how it will learn from the mistakes it has made in its engineering works and maintain a decent service to passengers while enhancement work is carried out”. Network Rail has since asked two rival contractors to work alongside the BalfourAlstom team responsible for the delay in engineering work near Paddington to improve work practices.

Network Rail is currently undertaking its “biggest investment in rail infrastructure since the Victorian era”. The investment is largely driven by capacity requirements and the modernisation of the rail network through enhancement and electrification schemes. Crossrail is set to continue to be the most significant new rail infrastructure project in the UK over the next three years, while the development of the high speed rail network HS2 will have a significant impact on rail infrastructure expenditure over the next two decades.

In its procurement process for CP5, Network Rail has moved away from competitive tendering and towards frameworks and alliances. This will result in the company forming closer, longterm relationships with its contractors, but also in a number of contractors losing work as it works with fewer suppliers. Recent delays in engineering works over the Christmas period in 2014 highlighted some continued shortcomings by Network Rail in delivering work on time. The rail operator will now have to demonstrate that it is capable of maintaining a decent service to passengers while enhancement work is carried out. This will, in addition to the higher efficiency savings targets imposed by the ORR for CP5, put further pressure on Network Rail and its delivery partners to deliver projects more efficiently and and on-time.