The McNulty report published on the 19th May 2011 has made a number of recommendations to overhaul the UK‟s rail network. Key to the report is the need for efficiency savings to be made whilst not compromising the capacity of the system and allowing for future growth.
The scopes of the efficiencies in the report are substantial in size, with McNulty indicating that the industry should be aiming to achieve a 30% reduction in unit costs (i.e. costs per passenger-km) by 2018/19.
This will certainly be a challenge. For example, if you were to ask most households to reduce their spending by 30% many would struggle. As one can imagine there is no single item that will make up these efficiencies and similarly the acknowledgement that there is no “silver bullet” in the rail sector is welcome.
However, given there is no silver bullet a wider variety of policy changes will be required and whilst this may result in a more efficient rail sector in the medium to long run it is vital to ensure that short run operations and investment are not too severely impacted.
Industry has offered innovative schemes in the past, but clearly there is room to do more. This requires a further improvement in the client – supplier relationship, and given the scale of the challenge engagement will need to improve significantly.
Transparency and policy certainty will be key for any industry, as is clarity on the direction government wishes industry to go that instils confidence. It is important to remember that policy uncertainty does carry a premium.
The reports recognition that fragmentation, excessive government intervention and lack of collaboration has created a system whereby the likely direction is the one in which it is heading is a start to recognising some of the inefficiencies that occur.
The misalignment of incentives has created inefficiencies, and it is important to address this. The key to efficiencies will not be necessarily by addressing the differential between opex and capex but more importantly the way in which they are integrated and performed.
The direction and implementation of policy should be consistent and encourage industry involvement. Throughout the whole process incentives, policy and regulations should all be tailored towards the efficient delivery of a cost effective rail network.
It is also important that given the extent of the changes proposed that funding certainty is considered with regards to the subsidy of the railways, and the increase in prices. Volatility in these areas creates uncertainty for investors and those companies operating in the market.
ACE welcomes the reports proposal of whole life thinking, and as a function of this cost will be an important factor. If the government wishes to meet its carbon targets sustainability will need to become of ever increasing importance.
However, it should be stressed that an efficient cost effective railway does not mean that every project is always delivered under the scheme which has the smallest cost.
The reports recommendation with regards to the decentralisation of Network Rail could provide significant benefits responding more proactively to specific issues within regional areas.
The challenge will be maintaining a national direction in terms of system integration and harmonisation and knowledge transfer between these decentralised entities. For the efficiency gains proposed to succeed the benefits should flow easily across the entire network.
A final key area in the report is that of overheads and administration, ACE has campaigned for significant improvements to be made in procurement and planning processes. ACE recommends government consults wider with stakeholder on these issues in detail given their potential for efficiencies.