06 December 2017

The latest strategy report from the Department for Transport (DfT) outlines continuing changes to the structure of rail in the UK as well as growth in infrastructure and steps to achieve passenger objectives. 

There are a number of detailed points in the policy document. We consider the three key aspects of the policy proposed for the industry below.

1. Closer working between operators and Network Rail routes

DfT policy is to bring greater integration between train operators and local Network Rail route management. It has identified opportunities from the ongoing reform of Network Rail and the recommendations of recent reports into the industry (including in particular the Shaw Report) to make changes to franchises and Network Rail internal funding and management structure to develop such integration further. Proposed steps include:

  • continuing the devolution/decentralisation of Network Rail's powers and budgets to local teams
  • the creation of single joint Network Rail and train operator teams running both track and train operations under an "alliance structure".

In decentralising the structure and authority of Network Rail it is proposed that:

  • More autonomous Network Rail route businesses are established. These businesses will be measured in terms of their efficiency and performance with the ORR regulating each Network Rail route separately from 2019.
  • New customer-driven targets and internal metrics are introduced enabling performance benchmarking of the newly created route-based Network Rail businesses by the ORR.

The creation of a single joint Network Rail and train operator teams is proposed such that:

  • The joint-working Network Rail/train operator team is shaped around an alliance structure. Introducing shared metrics for the whole operation of a particular part of the network and presenting a single face to passengers using integrated branding and culture.
  • Train operators, passenger representatives and Network Rail will all participate in newly formed "route supervisory boards" to provide an overall route perspective of each franchise.

These proposals seek to bring train operators and Network Rail closer together and, through structural decentralisation of Network Rail, allow more localised decision making. They may also allow ORR to compare the performance of different routes to identify and in future leverage good practice. 

Although deeper joint working between Network Rail and train operators is proposed, it is clear that a proposal for fully vertically integrated solutions with network assets and rolling stock being managed/maintained by a single entity is not currently on the table. These changes consequently do not fundamentally alter the core risk allocation between Network Rail and the train operators for performance issues. 

Notably any infrastructure risk sharing between Network Rail and the operator is to be limited to a "small scale" and designed on a "case by case basis". This will allow for future test cases of an infrastructure risk sharing approach. The approach is initially to be tested through the launch of a long-term regional partnership on the East Coast Mainline which will be operated by a single Network Rail and train operator team, with one branding, aligned incentives and led by one management team.

These changes will affect up-coming franchise competitions where Bidders will be encouraged to reflect the new way of working in their Bid proposals. Additionally, Network Rail route teams will be more involved in the pre-submission phase of franchise competitions with train operators expected to collaborate with Network Rail to develop plans for infrastructure management and future route infrastructure within their franchise bids. 

2. Investment – "Restore lost connections and make new ones"

The Government is to provide £34.7 billion of £47.9 billion to be spent on Britain’s railways between 2019 and 2024. Given the growth in passenger demand on the railways, investment is to focus on increasing the total capacity of the network and improving passenger service. 

Beyond the expansion of existing routes there are proposals to restore lost capacity through re-opening closed lines and opening new routes in support of housing and development policy.

Capacity is to be increased with new infrastructure, including major upgrades between Manchester, Leeds and York alongside projects to facilitate housing development and the delivery of the high speed network. 

There is acknowledgement by the DfT that the challenges of poor East-West connectivity need to be addressed; improvements are required to the network between major cities in the North; and of the potential benefits of Crossrail 2. Further opportunities are to be explored with local bodies and partners actively promoting a range of schemes such as opening closed lines and developing plans for new stations although no funding is specifically allocated for such schemes.

£450million of the Government’s investment has been allocated to deploying digital technology "where passengers can get benefits, and where projects are affordable and value for money." Specific projects include new traffic management systems, Driver Advisory Systems and digital signalling.

The ORR is to take a leading role in ensuring that investment in the rail industry provides value for money for passengers. The Systems Operator in Network Rail is to be regulated separately with a focus on its role to maximise the economic benefit of the whole railway. Network Rail is expected to work with local authorities, private promoters and other developers to progress the investment pipeline in rail. 

The government signals a desire to reduce the call on the public purse by "unlocking funding from developers and potential beneficiaries". Further guidance for investors and developers is to be made available as part of the government's efforts to involve a more diverse range of parties designing, financing and funding rail capacity and new lines.

The report makes it clear that improving customer experience and passenger service are at the core of its vision for the UK rail industry. Ongoing projects include:

  • the roll out of Smart ticketing by the end of 2018
  • a review of rail ticketing
  • ”Delay Repay 15” compensation scheme being contracted as a requirement for all DfT franchises (re-affirming a mandated requirement in latest franchises)
  • the introduction of a new, independent ombudsman scheme to strengthen the passenger voice.

3. Franchise changes

The DfT has announced changes to upcoming franchise competitions in line with the revised approach to the rail network. 

A consultation on the future of the Great Western franchise has been launched inviting views on whether there should be a separate franchise for the West of England. The expectation of closer integration between Network Rail and the franchise operator is embedded in any development of the franchise.

DfT has also indicated that the Thameslink, Southern and Great Northern franchise is likely to be split into two or more franchises when renewed in 2021. Options for the franchise, including transferring services such as the West London Line to TfL, are to be explored prior to the competition process starting in 2019.


The report reflects DfT policy of greater vertical integration of management and a focus on effective regulation and the end-user (passenger). This continues ongoing reforms of Network Rail and the objective of producing greater efficiencies and aligned incentives between industry parties. It is also clear that the government still favours ongoing infrastructure development although is still seeking substantial private investment to make many changes a reality (particularly on a local scale). It appears likely that the new generation of franchise awards will introduce further partnering and alignment between the bidders and their local Network Rail routes.

For further information or if you have any queries, please contact Ian Tucker. 

Key contact

Ian Tucker

Ian Tucker Partner

  • Dispute Resolution
  • Procurement Disputes
  • Procurement and Subsidy Control

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