3. FUNDING

THE CHALLENGE

In the main, funding for TfN will be provided by central government and, to a lesser extent, local authorities. In a post-COVID economy, there is a strong possibility that overall available funds from the Government will be limited due to the economic challenges caused by the pandemic. The use of rail infrastructure investment as a tool to jump-start the economy may counteract the threats to the TfN programme. However, this is likely to focus on the need for a high cost-benefit ratio and demonstrable means of delivering to budget. The Department for Transport’s Transport Innovation Efficiency Strategy seeks to address this.

Funding models are likely to look very different postCOVID, and access to private funding is expected to be more challenging. Looking forward, we will need to be commercially innovative in how we fund rail infrastructure projects. Business case metrics are important to the funding process. Choosing the right and balanced metrics to support business cases provides a framework to enable innovation, whereas unsuitable metrics, such as those based on minimum cost and shortest programme, can hinder it. The move to including wider economic and environmental benefits in transport appraisal is welcomed.

Return on investment can be difficult to determine for inherently high-risk innovation projects. Again, this means that the prioritisation of funding can tend towards the status quo, where the business case is most robust. To address this, organisations try to create a procurement environment that supports innovation and dedicate or seek distinct sources of funding for innovation projects. Ring-fenced innovation funds have been popular in recent years, with organisations allocating a specific amount of budget to projects deemed innovative, sometimes based on a percentage of revenue. There can, however, be drawbacks to this approach, such as difficulty in defining and applying the criteria for using the fund. Likewise, while ring-fenced innovation fund models are great at taking ideas towards ad-hoc implementation, they don’t incentivise long term scale up.

External funding for innovation within rail is available from a wide range of sources across government, including UK Research and Innovation (UKRI), dedicated innovation funds, private investors, industry funding sources, and accelerators. However, keeping abreast of all the different opportunities can be a challenge.

RECOMMENDATIONS

In the light of the changing landscape around COVID-19, and the governmental drive to support rail development in the north, there will be significant opportunities for solution owners over the coming years. To support this, TfN should define a funding strategy for enabling innovation, drawing upon best practice and experience from across the industry. This may include the consideration of a ring-fenced innovation fund, as well as identifying opportunities to secure external funding streams. The governance of any innovation funding should incentivise effective collaboration across different organisations in the rail sector.

Consideration could also be given towards a model where the asset owner is prepared to share the operational outperformance from successful innovations with the innovators involved across the project lifecycle. This would incentivise commercial scale up and ensure that investment in innovation is considered from a longer-term perspective. Collaborating with funding and partner organisations would enable cross-sector partnerships to be formed, focussing on the common goal of driving successful innovation.

Mentoring for innovators should be made available, providing guidance on navigating the industry, identifying opportunities, and submitting high-quality proposals. Potential applicants can connect with the Knowledge Transfer Network, who can assist with awareness and discussion around how to submit a strong bid. Mentoring support should include new companies entering the sector and those developing a product or service in a new area, ensuring that the most innovative ideas from other sectors are given adequate support and access to available funding. Larger, established companies should provide mentoring support to newer entrants to the rail industry, creating further opportunities for collaboration that drives innovation.

Recommendation: Define an innovation funding strategy for TfN that specifies sources and means of accessing funding for solution owners.