Invest and prosper

Ian Brown, managing director, London Rail, discusses the vital services National Rail provides to the UK and its economy, and makes the case for continued investment in rail transport

National Rail services are vital to the London economy and status as a world city, as over 40 per cent of people entering the central area every weekday use rail. Londoners make six times as many rail trips as anyone else in England. National Rail capacity is a key component of the London Plan and the Mayor’s Transport Strategy, and is essential to London’s growth, supporting private sector job and productivity growth, which in turn will drive a durable, longer-term prosperity for the UK as a whole.

The government’s coalition agreement made reducing the national budget deficit the number one priority. However, paying off the debt needs to be done in a way that protects the investment that the UK needs to strengthen future growth. In particular, this means ensuring that the reduced funding available is invested in the right infrastructure to link businesses together and to connect people to jobs. As set out in the agreement: “The Government believes that a modern transport infrastructure is essential for a dynamic and entrepreneurial economy.”

The case for continued investment in rail transport is therefore as much an economic one as one based on user benefits. In his emergency Budget the chancellor himself made it clear how important capital investment in good transport links remains for the British economy: “I think an error was made in the early 1990s when the then government cut capital spending too much – perhaps because it is easier to stop new things being built than to cut the budgets of existing programmes.”

National Rail schemes and budgets therefore have a significant impact as they deliver the GDP benefits that will help the UK recover from recession and improve its future competitiveness, just as the Tube upgrade and Crossrail construction do.

London First recently examined a sample of transport projects across the UK to see which strengthen the country’s growth prospects most. It segmented them into those undertaken in provincial cities, those between cities and those in London. All offered more than acceptable value for money. However, those in London offered GDP benefits four times as great as the other projects.

These benefits were recognised by government in the original High Level Output Specification (HLOS) settlement for London and the South East, for Control Period 4 from 2009 to 2014. This included the vital Thameslink programme, a significant amount of train lengthening, and a programme of station schemes.

Their context is long-term expectation of demand growth of over 2 per cent per annum, and they are supported by strong investment cases. The recession has seen a demand ‘pause’ equivalent to three years growth, but there is now evidence of a bounce-back in economic activity and demand, suggesting the respite from demand pressure could be short-lived. A significant increase in demand for rail travel during the first six months of 2010 has seen a return to growth in passenger numbers on the railways not witnessed since before the recession, and the ‘demand holiday’ may be evaporating fast. Analysis by the Association of Train Operating Companies (ATOC) shows during the first six months of 2010, growth in passenger journeys in London and the South East was about 5.5 per cent year on year, well over double the long-run trend. Meanwhile, it is far from the case that London’s railways have excess capacity.

Overall, 57 per cent of London’s promised new carriages from the HLOS programme have been delivered or are being manufactured. However, the government has announced that all uncommitted HLOS schemes are subject to review, and there is a moratorium on new rolling stock orders until April 2011 at the earliest. Without further interventions, that would leave some of the TOCs with the worst crowding having no new carriages. The demand anticipated in the Railways White paper has not vanished; rather growth is now rapid, and the case for capacity improvements in CP4 is as strong as ever
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The government rightly wants to make sure the railway offers value for money; in London, the railway not only does that but provides economic benefits far beyond merely those accruing to the users themselves. Railway transport has a higher multiplier effect than many other publicly funded industries. Even if the economy enters another downturn, expenditure on rail will generate substantial benefits for many other sectors.

All of which brings us to the next HLOS, for Control Period 5 from 2014 to 2019, and beyond.

The London Plan and the Mayor’s Transport Strategy (MTS) forecast employment growth of 750,000 jobs by 2031 and population growth of 1.25 million people, the size of South Yorkshire, resulting in at least three million more trips each day. Because of the concentration of employment in the central area, and rail’s very high mode share, this leads to a 35 per cent increase in rail demand.

Lack of rail capacity would act as a constraint on this employment growth, but with London’s 13 per cent of the national population contributing 18 per cent of the country’s Gross Value Added, the contribution to the national economy is vital. It is this combination of high productivity per capita and heavy dependence on rail that leads to the very high contribution to GDP of London rail projects, cited above.

The MTS shows that while the full plans for HLOS1, Crossrail and the Tube Upgrade deliver a significant reduction in rail crowding by 2017 on many corridors (though not all), without further major investment rail crowding will get much worse again by 2031. To address this, the MTS sets out an approach to seeking further investment in National Rail as part of HLOS2, and beyond, with a number of specific proposals which are currently being developed by TfL London Rail. Whilst the main focus of industry and government is currently on Control Periods 4 and 5, taking us up to 2019, the story does not stop there, and if the UK economy is to gain from London’s growth then further investment in rail capacity will be required in Control Periods 6 and 7.

TfL, together with its many stakeholders, has identified the following challenges for railways in the capital for the period between 2014 and 2019 (HLOS2):

Targeted additional capacity/capability – passenger trains, stations, freight and interchanges. We have identified a programme of enhancements with a benefit cost ratio of over 2 to 1, costing roundly £1 billion. The focus would be on routes such as Greater Anglia into Liverpool Street, the route into Moorgate, the electrification of Gospel Oak to Barking, and improvements to the line from Staines to Waterloo.

Improving customer services – more consistent standards; improved accessibility; less disrupted services; and greater coordination and integration between modes. It is noticeable to customers that there are two different rail networks in London: those services directly managed by TfL and other National Rail services. They have different standards and fares, but they serve the same passengers. TfL standards are popular with passengers and have been shown to generate mode shift and revenue. Conversely, having three separate sets of fares tariffs (TfL, National Rail and journeys between the two) has the opposite effect.

Other challenges include maintaining safety and reliability, carbon reduction and greater efficiency in the use of available resources.

However strong the case for investment, we are very mindful of the current financial realities, and that whilst HLOS2 covers a period mostly outside the scope of the government’s Spending Review, it is likely that the scope for funding additional enhancements in 2014 to 2019 will be limited.

TfL is therefore considering the prioritisation of our HLOS2 schemes, and the potential phasing of the larger elements such as additional capacity on the West Anglia Main Line. However, should there be any cuts to those HLOS1 schemes planned for the London area, they would be likely to form the highest priorities for HLOS2. This in turn would push some of the proposed HLOS2 schemes into the next control period.

Final certainty about the wider spending commitments will emerge after the Spending Review in the autumn, which will set spending limits for every government department for the period 2011/12 to 2014/15.

Given the current risks to the HLOS1 schemes, and the likely constraints on HLOS2 funding, it is more important than ever for the rail industry to become more cost effective. The railways will have to adjust to these more straitened times, and if the industry simply comes up with a ‘shopping list’ for HLOS2, it is unlikely that it will be fully funded.

TfL has developed a series of proposals that would improve efficiency and make the most of rail investment in the capital, offsetting the cost of the HLOS2 schemes. The greatest opportunities for efficiency we have identified are in the areas of project sponsorship and the application of standards. We continue to work on this vital area, and await the findings of the joint ORR, HM Treasury, and DfT Value for Money study with great interest.

This is one of a number of opportunities in the rail industry presently; the recent consultation on Reforming Rail Franchising is another opportunity to make sure the industry becomes more efficient, and is potentially consistent with the Mayor’s proposals for greater devolution.
 
Given the strategic importance of rail to London’s economy, and hence that of the UK as a whole, TfL will continue to strive for investment in National Rail services in London.