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ORR's PR23 final determination has been published – now industry must deliver a railway customers can depend on

ORR's PR23 final determination has been published – now industry must deliver a railway customers can depend on

Rail Partners - ORR's PR23 final determination has been published – now industry must deliver a railway customers can depend on
03 November 2023
Liam Bogues, freight policy lead

After well over a year of engagement with industry and political decision makers, this week the Office of Rail and Road (ORR) published its PR23 final determination. While this is unlikely to capture the headlines, and it will be left to technical experts to wade through the detail in the various documents that have been published, it represents a significant milestone for the rail industry. 

What is the final determination? 

The periodic review is the process through which ORR determines what Network Rail should deliver with the funding made available and how it will be regulated in Control Period 7 (CP7) which covers the five-year period commencing in April 2024. It ensures that Network Rail and the wider industry is able and incentivised to deliver a high performing railway that delivers value for money for users, funders and taxpayers.

This periodic review has taken place during a challenging period for the railway. The industry continues to recover from the profound impact of the pandemic on passenger demand, industrial action persists, and recent network performance has not met passenger and freight customers’ expectations. Similarly, the wider economic pressures facing the UK have also increased uncertainty. Against this backdrop, the £43.1bn five-year settlement from government to fund Network Rail’s activity to operate, maintain and renew the railway is to be welcomed.

Efficient delivery will be key in CP7 

In this difficult fiscal environment, it is even more important that Network Rail delivers efficiently. It has made positive strides in CP6 in this regard and must continue on this trajectory in the next control period. ORR has agreed and set Network Rail an efficiency target of £3.2bn in England and Wales during CP7. This is just one of the many targets that ORR will monitor Network Rail on through its refreshed outcomes framework model. It is important that the regulator is proactive in escalating Network Rail underperformance if there are early signs that they are falling short.

Creating additional flexibility for future reform

Although progress on rail reform appears to have stalled, and while we anticipate legislation to create GBR will be absent from the King’s speech, there is broad alignment across the industry and political parties that a new guiding mind for the railway is required to improve accountability. Implicitly, this requires structural change and through the final determination, ORR has sought to incorporate additional flexibility including to both the performance and possessions regime for passenger operators, so that it can regulate Network Rail on day one of CP7 and subsequently, following the creation of a new arms’ length body overseeing both infrastructure and most passenger services as contractor.  

A railway that is resilient to climate change 

In recent years we have seen how the growing impacts of climate change are affecting network performance, whether through track defects resulting from high temperatures, or land slides caused by large volumes of rainfall. This has placed huge pressures on the rail network and affects passenger and freight customers’ perception on rail’s reliability. To restore this confidence and attract new customers to the railway, network resilience and preparedness for severe weather events has rightly been identified as a CP7 priority.

But improving network resilience is a tall order. Despite ORR outlining in its final determination a further £540 million of core renewals for Network Rail to deliver in CP7, budgetary constraints mean that renewal spend is down 10% compared to CP6. Instead, Network Rail will prioritise more maintenance activity, with a market-led approach focussing on the busiest and most valuable routes. While this seems sensible within the funding envelope provided, asset condition measured by the Compositive Sustainability Index (CSI) is projected to decline by 2.5% in CP7.

ORR does not believe that this creates any undue concerns from a safety perspective although it is likely that operational measures including speed restrictions may become more common, something that Rail Partners highlighted in our response to the draft determination as not in the interest of passengers or freight customers. Perhaps more alarmingly, Network Rail considers that it will not be able to recover asset condition to CP6 levels until the mid-2040s. This presents a significant risk to the viability of rail services and so a renewed focus on maintaining and improving asset condition in CP7 and beyond is essential. 

An emphasis on performance is welcome, but Network Rail's targets could have been more ambitious 

Recent performance levels have not met passenger and freight expectations, with both the public performance measure (PPM) and freight delivery metric (FDM) reaching some of their lowest points on record according to ORR’s data. There was a risk that poor performance could be baked into future performance trajectories but Rail Partners was pleased by the strong stance ORR took on performance in the draft determination by rejecting the proposals put forward in their strategic business plans earlier this year. Unfortunately, Network Rail’s performance targets were softened in the final determination. Ultimately this reduces the incentives to limit the disruption it causes to passengers and freight customers.  

In other areas, we support adjustments that ORR has made from the draft determination, including in relation to Network Rail payment rates where passenger operators had argued that the updated methodology didn’t accurately capture the revenue impact from poor passenger performance. Similarly, Rail Partners has successfully argued for an adjustment to be made to the freight operator performance benchmark, to ensure it was realistic and based on recent performance data.

For the first time there are freight growth targets across Great Britain in CP7 

Another positive step is the introduction of a regulated freight growth target in CP7. There are targets to grow rail freight by 7.5% in England and Wales, and by at least 8.7% in Scotland. Network Rail’s performance against these targets will be measured by ORR, which is important to ensure that industry stays on track for the longer-term growth target to be announced by the Secretary of State later this year.

ORR has rightly called on Network Rail to work with the rail freight sector to establish plans to deliver freight growth, furthering the sector’s contribution to government’s economic and environmental objectives.

Now focus must turn to implementation 

Now that the final determination has been published, Network Rail has clarity on what it is expected to deliver, and operators can plan their businesses accordingly. After industry debate throughout the periodic review, it is now vital that the sector works together to deliver a railway that passengers and freight customers can depend on.

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