October 2020
COMPREHENSIVE SPENDING REVIEW RESPONSE FROM THE RAILWAY INDUSTRY ASSOCIATION (RIA) INTRODUCTION This submission constitutes the response from the Railway Industry Association (RIA) to the Government’s Comprehensive Spending Review. BACKGROUND TO RIA 2.1 RIA is the trade association for UK-based suppliers to the UK and world-wide railways. It has over 300 companies in membership covering all aspects of rolling stock and infrastructure supply and covering a diverse range of products and services. As well as most of the larger, multi-national companies, 60% of RIA’s membership base is comprised of SMEs. 2.2 The Oxford Economics 2018 report shows that the UK rail sector contributes annually over £36bn Gross Value Added (GVA) to the UK economy, employs some 600,000 people and generates £11bn in tax revenues. For every £1 spent on rail, £2.20 of income is generated in the wider economy, meaning rail is not just an important sector in its own right, but it is also crucial for UK plc, its economy and connectivity. Rail has been a growing industry with the number of rail journeys expected to double in the next 25 years, along with significant growth in rail freight traffic, regardless of shocks such as the present Coronavirus crisis. The full report Oxford Economics report can be accessed here. RIA Member companies are based across all the regions of the UK a map can be seen here. 2.3 RIA recognises that equality diversity and inclusion drive innovation, financial performance and success. Together with Women in Rail, RIA is promoting an Equality ,Diversity and Inclusion Charter for rail, which has the potential to support social mobility, grow UK STEM skills,. create local opportunities, and increase the talent pool from which the future leadership of the rail sector will be drawn. 2.4 RIA provides its members with extensive services, including: • Representation of the supply industry’s interests to Government, Network Rail (NR), TfL, HS2, ORR and other key stakeholders; • Providing opportunities for dialogue and networking between members, including several Special and Technical Interest Groups; • Supply chain improvement initiatives; • Provision of technical, commercial and political information every week; • Export promotional activity, through briefings, rail trade missions overseas, hosting inwards visits; and • Organising Great branded UK Pavilions presence at key exhibitions overseas.
EXECUTIVE SUMMARY The UK railway network has and continues to be essential for the nation’s economy. During the height of the lockdown, the rail network enabled key workers and resources to get where they needed to be, and investment in the network will be essential to reboot the economy. The crisis has promoted closer collaboration between the Government, infrastructure clients
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and the supply chain and we recommend that this should continue in order to drive productivity improvements and unlock the full benefits of rail. UK rail can act as an even greater catalyst for jobs and investment, at this vital time, but uncertainty about the future of the sector will limit the ability of rail suppliers to deliver growth. We understand that Government appetite to invest in the rail industry may be constrained by a perception that there is limited capacity within the supply chain. RIA would welcome the opportunity to discuss this challenge because our analysis has identified latent capacity and where pipelines are becoming clearer such as electrification and digital signalling we have been able to develop credible resourcing strategies. The Government can ensure greater certainty for the sector : • •
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Recommendation 1: Recognise the full value and potential of rail sector to rapidly mobilise to support economic growth, zero carbon, levelling up, skills and export priorities. Recommendation 2: Publish the Williams Rail Review and the Network Rail Enhancement Pipeline as a matter of urgency, providing certainty and a long term plan for the structure of the industry. The Government should also set up a Rolling Stock Summit to look at delivery of a sustainable rolling stock industry. Recommendation 3: We recommend that Government goes beyond current Project SPEED thinking and: i) actively benchmarks the client/supplier proportion of project costs; and ii) considers a “make or buy” review to assess where the costs accrue and to ensure that where the private sector is best placed to deliver they are given the authority and opportunity to do so efficiently. Recommendation 4: Commit to HS2 by publishing the Integrated Rail Plan for the North as planned in order to support effective private investment, forward planning and skills development. Support multi-year funding settlements for devolved transport bodies in order to enable them to work with the supply chain to deliver local priorities effectively. Recommendation 5: Ensure rail is at the heart of the Transport Decarbonisation plan by delivering a rolling programme of rail electrification and supporting the introduction of hydrogen and battery trains. Recommendation 6: The Government should commit to innovation by funding investment in the roll out of proven technologies including effective use of data and bringing forward funding for digital signalling commitments in the Long Term Deployment Plan. There are opportunities to do more to incentivise rollingstock and operations innovation.
Renewals delivery should continue to be smoothed over CP6 with mechanisms put in place to ensure consistent delivery in CP7. The Government should support forward visibility of expenditure profiling and open data and consider greater access to track, as set out in the Rail Supply Group’s ‘Act Now’ Report. Rail should be a central plank of Government’s plans to ‘build back better’ and instead of holding off investment, we urge you to accelerate rail projects, which will help deliver a rail network ready for the future, providing a modern, safe and low carbon mode of transport, enhancing connectivity and supporting active travel, boosting our exports offer and providing much needed employment and investment for communities across the UK.
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OVERVIEW The UK economy is facing great uncertainty following the Coronavirus pandemic. The UK rail sector played a key role during the lockdown period, ensuring key workers and resources could get around the country. As we look to how the UK can spur an economic recovery, rail has a similarly important role. UK Rail Potential: Exports and Inward Investment 3.1 The UK rail sector currently exports over £800m a year. Many companies are global leaders bringing inward investment and looking to export from the UK. According to the UNIFE World Market Study 2020 the global rail supply market has grown by 3.6 % per year from the 2015–2017 period to the 2017–2019 period and now has a volume of EUR 177.2 bn per anum. This growth was driven by considerable investments in rolling stock, infrastructure and rail control. 3.2 Globally countries are recognising rail as a key sector to support post-coronavirus sustainable growth strategies. Despite a likely dip in investment due to the Coronavirus pandemic, annual market growth of between 1 and 2.3% until 2025 is predicted, when an annual volume of approximately ER 240bn pa could be expected. The UK is recognised to have world leading expertise in rail and infrastructure, and this presents a significant opportunity to support jobs and grow capability. Commitment to rail now will also ensure that we remain competitive both in terms of a growing share of the global market and in order to deliver UK investments at a competitive price. A delay in investment may risk capital and capability moving off shore. 3.3 Rail investment is crucial to the UK and, as part of the economic recovery it offers three benefits: • Growth: Rail projects generate significant investment – for every £1 spent on the rail network, £2.20 is generated in the wider economy; • Geography: Rail projects support investment in all regions and nations of the UK, including areas of social deprivation where investment and regeneration is urgently needed – supporting the Government’s ‘levelling up’ agenda; and • Green: Rail is a green mode of transport and investing in rail will ensure the economic recovery is also an environmentally beneficial one. 3.4 In February 2020, before the Coronavirus pandemic led to an economic lockdown, RIA published its Spring Budget1 Submission focusing on five ‘crunch points’ that presented a threat to investment and to the Government ‘levelling up’ the economy by 2024. The issue was with the inconsistency of planned investment across the rail sector, covering renewals, enhancements, rolling stock, decarbonisation and digitalisation meaning that unless action is taken industry capability and the opportunity to deliver tangible outputs by 2024 will be lost 3.5 Following the pandemic, overcoming these ‘crunch points’ has become even more important, for the UK rail industry to be able to fully deliver its potential on jobs, investment and economic growth. In these uncertain times, there is a role for Government to provide the sector with as much certainty as possible in order to spur investment. A clear forward plan will aslo unlock efficiency and productivity benefits. 3.6 Recommendation 1: Recognise the full value and potential of rail sector to rapidly mobilise to support economic growth, zero carbon, levelling up, skills and export priorities.
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RIA Submission to the Spring Budget, February 2020
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ROLLING STOCK
4.1 In March 2020, the Government implemented the Emergency Measures Agreements (EMAs) which were welcomed by the rail supply sector, particularly for companies providing maintenance contracts to train operators, and their supply chains. The EMAs allowed work to continue, ensuring that trains were able to run at a critical time. 4.2 Whilst it is understood that the Emergency Recovery Management Agreements (ERMAs) announced in September 2020 are a transitionary arrangement, there is a growing concern about the limited visibility the industry has for the sector’s structure in the coming years. This already appears to be delaying rolling stock investment decisions. The Williams Rail Review, which was due to report in Spring 2020 has understandably been delayed by the Coronavirus pandemic, but there is an increasing need to have visibility of the future structure of the sector. 4.3 The rolling stock sector is also facing a period of volatility that may impact its ability to deliver. Half of the current national passenger train fleet has already or will shortly be replaced following a large volume of orders (some 7,200 vehicles). Further orders for new trains in the coming years will be fewer and demand to upgrade trains already in use on the network has already notably reduced. This quantum of new trains orders means that some 4,000 vehicles, some with significant remaining asset life, will be displaced at the end of their current lease. 4.4 This increasing trend towards the use of new trains has resulted in a steep downturn in the train refurbishment market – the refurbishment supply chain will need to adapt to survive and already several businesses have closed. These suppliers are critical to the repurposing and performance of trains already in service on the network. The closing of businesses in this sector could lead to job losses, reductions in skilled labour and would make it harder for the industry to address any performance or reliability issues on the network in the future. 4.5 Reducing the volatility of the sector is vital and would benefit from the ‘guiding mind’ being considered by the Williams Rail Review. The publication of the Williams Rail Review white paper and the establishment of this ‘guiding mind’, even in shadow form, would help begin to address this issue. 4.6 Should there need to be a delay to the Williams Rail Review, the Government should commit to supporting a Rolling Stock Summit to bring together the key industry organisations to examine how to deliver a sustainable, long term rolling stock strategy. 4
ENHANCEMENTS
5.1 In Control Period 6 (2019 – 2024), the Government became responsible for rail enhancement projects which now proceed through a Rail Network Enhancements Pipeline (RNEP). In October 2019 an update to the RNEP was published, listing the progress of 58 projects within the list. Only 13 of these schemes are at the ‘Decision to Design’ stage, the penultimate point before the project gets a ‘Decision to Deliver’. Projects like TransPennine Route Upgrade (which was delayed from CP5) and East West Rail Phase 2 are contained on the list. 5.2 Since October 2019, there has not been an update to the list of projects, with the Rail Minister Chris Heaton-Harris MP recently saying that there were now around 80 projects within the pipeline.2 RIA has since launched its ‘Speed Up Rail Enhancements’ campaign calling for the projects on the list to be accelerated to support the Government’s aim of an economic recovery.
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Rail Technology Magazine
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5.3 There is also an issue with visibility of the projects. Few of the schemes within the RNEP are construction ready, meaning there will be significant hiatus in work in CP6, even if the 13 furthest developed projects get the go-ahead. This means that acceleration of the projects on the list is vital. And as there has not been an update for a year, rail suppliers remain unclear about what projects are being taken forward. This impacts on their capacity to invest and use resources effectively. 5.4 We support the work Network Rail are doing under their ‘Project SPEED’ to reduce the time and cost of specific enhancements which are construction ready, and can progress rapidly, and to roll out this methodology more widely. 5.5 Recommendation 2: Publish the Williams Rail Review and the Network Rail Enhancement Pipeline as a matter of urgency, providing certainty and a long term plan for the structure of the industry. The Government should look to accelerate projects including those identified by the Network Rail Project SPEED initiative and also set up a Rolling Stock Summit to look at delivery of a sustainable rolling stock industry. 5
SUPPLY CHAIN CAPABILITY AND EFFICIENCY
6.1 We understand that Government is considering assessing supply chain capability to deliver. In our view a clear pipeline of work which scales up overtime and considers specific assets appropriately will allow the supply chain to deliver effectively. 6.2 Capacity: Compared to CP5 the volume of committed enhancements is significantly lower in the current control period than in CP5. The total enhancements spend in CP5 was £17bn compared to c£10bn planned in CP6 which indicates a minimum potential capacity of £7bn. Although some of the potential resource will now be diverted to HS2, the completion of Crossrail will release a significant capability. We have worked on an analysis with Network Rail which shows that there is capacity in existing rail suppliers (which we would be pleased to discuss with officials), these factors would confirm there is capacity available which could be utilised by the prioritisation and acceleration of projects currently in development. We have also seen evidence that suppliers are seeking to move resource into rail recognising the opportunities presented may be higher than in other infrastructure sectors. 6.3 Efficiency: We recognise the need for rail to improve its efficiency. A clear pipeline of work will help facilitate this. We also recommend greater financial delegation of authority to infrastructure clients so that suppliers have clear expenditure profiles which allow them to save money by planning and deploying resources effectively. 6.4 We welcome the fact that the Government’s new Acceleration Unit and the Network Rail Project SPEED is considering all planning and decision making processes to see where overheads can be reduced and to support collaborative and efficient decision making. 6.5 HMT launched the Infrastructure Finance Review consultation in March 2019. The UK rail sector has global expertise on privately funded and financed projects – both for infrastructure and rolling stock. Coronavirus has put great pressure on public finances – we urge Government to publish the results of the Infrastructure Finance review and to involve expert rail suppliers in consideration of appropriate business models to deliver rail in partnership with the private sector. 6.6 Recommendation 3: We recommend that Government goes beyond current Project SPEED thinking and: i) actively benchmarks the client/supplier proportion of project costs; and ii) considers a “make or buy” review to assess where the costs accrue and to ensure that where the private sector is best placed to deliver they are given the authority and opportunity to do so efficiently.
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HS2 AND THE INTEGRATED PLAN FOR THE NORTH
7.1 In February 2019, Transport for the North’s (TfN’s) ambitious Strategic Transport Plan was launched. Its Plan sets out £60-70 billion in investment smoothed over the next 30 years, and will incorporate world-leading green, digital and sustainable technologies to address some of the key transport challenges facing the North. RIA welcomed this Plan and the proposed smooth pipeline of investment, which will equate to an annual spend of £2.3 billion over 30 years. Through this steady pipeline of work, the local supply chains can respond by investing in local skills, innovation and the broader industrial capability to give highly competitive solutions that can reduce cost. 7.2 It is conservatively assumed that this level of investment will create 10,000 new jobs in the northern rail supply sector, representing an employment uplift of 18%, and economic growth of £589m GVA. This investment will benefit many communities with lower than average levels of employment and GVA per head. Currently the North’s rail supply base employs 58,000 across 300 companies, representing about 25% of the UK supply chain. These are companies that significantly contribute £3.3 billion annually to the local economy, sustaining high value jobs and covering a broad range of products and services - including complex transport research projects, infrastructure design and delivery, train manufacture and modernisation – and utilise new clean, digital and sustainable technology. These companies invest in skills and local employment and have some of the most modern and advanced facilities in the world. 3 7.3 We welcome proposals for an Integrated Plan for the North to inform decisions on HS2 and Northern Powerhouse Rail. Rail projects take time to design and deliver effectively – and as these plans recognise benefits start with local employment and community investment. We recommend that plans should be expedited so that rail can support the build back better agenda. We also note there are many potential enhancements to the existing regional network which, if funded, would help develop this local employment whilst the major projects are being developed. 7.4 London should not be forgotten in this process – just as suppliers need forward visibility of pipeline to deliver efficiently, local and devolved transport bodies nationwide also need a clear line of sight. We therefore support agreement on appropriate multi-year funding settlements as soon as possible. Uncertainty and delay create costs and undermine supply chain investment and capability development. 7.5 Recommendation 4: Commit to HS2 by publishing the Integrated Rail Plan for the North this autumn as planned. Support effective private investment, forward planning and skills development including multi-year funding settlements for devolved transport bodies in order to enable them to work with the supply chain to deliver local priorities effectively. DECARBONISATION 8.1 The Government has stated that the economic recovery should also be a ‘green’ one, a view that RIA supports. Currently rail is the transport mode with the lowest GHG emissions in the UK. In 2018, GHG emissions from rail (passenger and freight) made up just 1.4% of the UK's domestic transport emissions. Rail also has a big part to play in decarbonisation of surface transport through modal shift. 8.2 To achieve the Government’s goal of decarbonising the rail network by 2050 the Government need to invest in a rolling programme of electrification that extends the frontier of the electrified rail network whilst investing in low carbon self-powered rolling stock. RIA’s Electrification Cost Challenge report 3
https://www.riagb.org.uk/ria/nril/nril.aspx/
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shows that electrification projects are already being delivered at up to half the cost of some past problem projects, notably the Great Western Electrification Programme.4 8.3 Network Rail recently published their interim Traction Decarbonisation Network Strategy, setting out plans to electrify 12,000 km of rail network by 2050 as well as a key role for hydrogen and battery technology5. In order to achieve the plan, the Government should extend current electrification projects which are ending this year to avoid a hiatus in work, which would reduce capabilities in the sector, and make projects harder to deliver in future. The Government should also support plans by rail companies to invest in hydrogen and battery fleet orders. 8.4 Recommendation 5: Ensure rail is at the heart of the Transport Decarbonisation plan by delivering a rolling programme of rail electrification and supporting hydrogen and battery rolling stock. 7
DIGITALISATION
9.1 There are huge opportunities in the use of digitalised control (signalling) and command (traffic management) systems which offer significant opportunity to improve the service the railway provides to passengers. 9.2 The rollout of digital signalling is essential. It is clear that to ‘do nothing’ is not an option in respect of the railway’s signalling systems as much of the current system becomes life expired in the next 15 years and, if not replaced, would necessitate the removal of parts of the railway from service. In the UK a recent study has identified that digital technology is the only affordable way to deal with this backlog of signalling renewals. Digitalisation and electrification will also reduce the future cost base of the industry – just as the move to electric vehicles is expected to reduce the whole life cost of driving. 9.3 Positively, the industry now has visibility of a forward pipeline of activity in Network Rail’s Long Term Deployment Plan (LTDP). However, the LTDP is not yet funded and shows a steep ramp up in activity in the middle of Control Period 7 around 2027, with limited digital signalling work before that point. Suppliers are ready to invest in the people, plant and processes to introduce this new technology and reduce unit costs but need confidence that the plan will be funded. 9.4 RIA was pleased to see the Government’s commitment to the digitalisation of the East Coast Mainline, and to explore the digitalisation of other projects. The Government should commit to the funding of the LTDP and to bringing work forward to support the industry becoming ‘match fit’ by 2024. 9.5 Coronavirus has highlighted the need to deploy proven but not widely utilised technologies including effective use of data and remote monitoring equipment. These technologies can enable rail services to be more responsive to demand, enable off site working and improve the efficiency of the railway. We welcome Network Rail and HS2 funding and support for innovation – however more could be done to create an environment which incentivises and supports innovation in rolling stock and operations – for example more targeted innovation, effective use of procurement for difference and creative match funding to leverage Government rail funding. Too often rail is forgotten when it comes to wider zero carbon and air quality funding initiatives. 9.6 Recommendation 5: The Government should commit to innovation by funding investment in the roll out of proven technologies including effective use of data and bringing forward digital signalling commitments in the Long Term Deployment Plan. There are opportunities to do more to incentivise rollingstock and operations innovation. 4 5
RIA Electrification Cost Challenge Report, March 2019 Traction Decarbonisation Network Strategy, September 2020
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RENEWALS AND ENHANCEMENT DELIVERY
10.1 Since 2017 RIA has been calling for the smoothing out of renewals workloads to ensure the industry has a smooth and consistent profile of work, unlike the ‘boom and bust’ profiles seen in previous Control Periods. 10.2 At the start of Control Period 6, a RIA survey of 28 representative members half way through Year 1 showed nearly 90% believe renewals volumes were not coming forward at the rate expected. Since then, Network Rail has been collaborating closely with RIA members, and despite Coronavirus investment levels have broadly held up and forward visibility is improving. 10.3 The Network Rail leadership team have committed to close and regular engagement with the supply chain including on Project SPEED and this collaborative outcome focused approach is very welcome and should continue in order to support rail productivity improvements. We welcome Network Rails early procurement of framework contracts at the end of CP5 – and the fact that these frameworks extend for periods longer than the current Control Period – this means that in many instances there is no need for further procurements work can start now. 10.4 As the Rail Supply Group’s ‘Act Now’ Report shows, there may be opportunities from greater access to track for suppliers whilst passenger numbers are reduced. The Government could consider more blockades or longer possessions to increase the efficiency of delivery by railway businesses. We also welcome the Act Now commitments to forward expenditure profiling and maximising the benefits of passenger data sharing for the rail system and users.
If you would like further information, please contact RIA Public Affairs & PR Director Max Sugarman at max.sugarman@riagb.org.uk, or call 020 7201 0777.
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