Can we afford our railway and what are our options?

Welcome to the 'Recalibrating Britain's Railways' event series—a thought-provoking journey that challenges conventions and reshapes the railway landscape.

As we approach the upcoming events in Birmingham, Manchester, London, and online throughout October, we're excited to unveil a linked collection of thought pieces. These pieces aim to provide deep insights, ignite meaningful debates, and generate excitement for what lies ahead.

Join us in this transformative exploration as we delve into critical topics, spark innovation, and collectively recalibrate Britain's railway.

The challenge

The financial challenges of the rail industry since the COVID-19 pandemic have been well-documented. Passenger revenue (adjusted for CPI inflation) is at 79% of its pre-pandemic level, while both Train Operator Company (TOC) operating costs and Network Rail Operating Maintenance Renewal (OMR) costs are higher as well.

Another uncomfortable truth is that Britain’s railways are not the only call on the public purse.  NHS waiting lists, challenged school budgets, a hefty asylum claims backlog and the ever-pressing net zero transition are all worthy causes which are deeply rooted in the public’s everyday lives and imaginations and with powerful lobbies to assert their importance. 

Jostling within this crowded space of competing priorities (of which some more than others are drivers of electoral favour) railway funding will have to argue for their slice of the taxpayer pie.

But with so many questions around cost and savings, can rail win the argument?

A key challenge: How to deliver long-term change to costs without sacrificing revenues

Wholescale reduction in network maintenance and repair is not an option and reducing customer experience attributes is only likely to hit revenue recovery. The industry cannot allow material degradation of the network and services, this merely postpones costs and as performance worsens over time will dampen passenger revenue and confidence even further. This could carry the additional effect of worsening the railway’s ability to secure Government funding for OMR and enhancements.  

Maintaining and operating a safe network which facilitates reliable passenger and freight services, whilst simultaneously delivering increasing cost savings each control period is clearly a challenge. To meet these needs new efficiencies must be identified and delivered but investment will also be required to do so.

One option is cost saving through reduced activity. Steer supported Network Rail to explore just this option as part of its pandemic reflections, whilst hypothetically we concluded that there was an opportunity here, the reduction in train services would need to be material and sustained for a committed period over multiple years.

In a separate piece of work, we confirmed that fixed costs in the sector are a further challenge to saving costs. It is unlikely that elected officials would pursue a strategy which included saving these costs given both the legacy of the Beeching cuts (which is still strong in the public memory nearly six decades on) and the inconsistency with Net Zero ambitions.

Short-term thinking in Government is also affecting decision making, a problem in rail’s current financial landscape. Whilst the Department for Transport continues to seek changes through the Annual Business Planning process (now reported to provide the opportunity for TOCs to promote revenue growth initiatives) the Department remains arguably focused on immediate changes. With rolling stock costs (including maintenance) often around 40% of the total train operator costs (when track access infrastructure costs are excluded) the ability to generate change in the short term is limited, and arguably painful in the medium term – witness the current increase in lobbying about the risk to UK rolling stock manufacturing and its employment.

This leads us to the most tangible issue of the last year, the cost of the industry’s workforce.  Frontline change is difficult as the industrial relations challenges we continue to experience demonstrate, with the strikes resulting in reductions in passenger revenue, potentially in the order of £700million. 

More fundamental change, like proposed changes to the availability of ticket offices across the network, have also proved difficult. A public consultation on the plans for ticket office closures produced strong political and public reaction (almost 700,000 consultation responses) making implementation even more challenging.

Are solutions enough to secure funding?

It is generally recognised across the sector that the industry needs to bring about improved efficiency and effectiveness.  What is lacking is a clear philosophy and shared understanding of the imperative and scale of change required.  Going forward we will need to support each other in considering the options with:

• An appreciation of railway costs and value in the context of the country’s other imperatives, expenditure, services and goals.
• An Improved understanding of the practicalities of escaping industry costs.
• A willingness to explore bold and creative solutions.
• A thirst to realise change at a local level that produces valuable (if small) changes in efficiency, effectiveness or understanding.
• A mission to consider the equity of change proposals to develop more resilient, attractive and implementable solutions.
• However, solutions must also consider the central relationship between the Treasury and the rail industry. Much is said by reform commentators about HM Treasury blocking progress because of perceived lack of conviction in wholesale reform. The Treasury is weary of the rail industry’s unmet promises of change and efficiency and is rumoured to be nervous about the creation of another autonomous public sector organisation, when they believe agility and innovation is more likely to come from the private sector.

HM Treasury’s perspective may also be a more brutal one, the sector needs to make some tough decisions rather than seek more funding or defer through expensive and expansive reforms.  They may well hold a hard line to encourage the rail industry to resolve and realise the necessary trade-offs.  This has logic to it but perhaps misses the emotional intelligence of navigating national and local politics when it comes to the railway.  The ticket office closures will be a powerful reminder of this to the Treasury, even if they may also point to a lack of preparation by the industry for what was always going to be a contentious course of action.

Recalibrating Britain’s Railways

Steer is pleased to be delivering a series of events this October to explore these very questions by considering a new paradigm for the railway and what that could mean for its management today. Across three events in three major cities across the UK – Birmingham, Manchester, and London – we will examine both the contemporary state of rail and how we can work towards a greener, better-connected, and more profitable future for Britain’s railway. 

You can find more details on our Recalibrating Britain’s Railway series and the opportunity to participate either in-person at Birmingham, Manchester, or London (or attend one of our online) events here.

Thank you for joining us on this thought-provoking journey as we recalibrate Britain's railway industry. Don't miss the opportunity to be part of these transformative discussions.