Network Rail review: 'more private finance' needed to improve UK railways

Infrastructure on individual routes could be operated by the private sector through concession agreements or time-limited licences, while each of the network's geographical 'routes' could be "required and empowered" to seek funding from local developers or businesses that are likely to benefit from new investment. Private sector funding should also be sought for specific infrastructure projects, HS1 chief executive Nicola Shaw said in her final report.

The report proposes the introduction of a 'hybrid concession' model for running the routes, based on a combination of regulated asset ownership and a conventional concession agreement. The model set out in the report would allow the route to be transferred off the government balance sheet, provided that the arrangements were "structured with sufficient risk transfer and autonomy from government to meet Eurostat guidance whilst still meeting public interest tests", according to the report.

However, transport and infrastructure law expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that further decentralisation of power to Network Rail's 'route managers' could "divert attention and dilute resources from where they are needed".

"Network Rail has been developing an increasingly decentralised management system," he said. "But this system will work best when it considers the operational interfaces between the different routes and the various elements that make up the network."

"A different and potentially less glamorous question is to consider how projects can be delivered in a better way to deliver more bang for buck, and mitigate the concerns that fare paying passengers are being unjustly penalised. If the intention of Shaw's report was to improve passenger, or customer, experience, then ownership should be a secondary concern. The real goal should be about delivering funds to help finance much-needed improvements," he said.

"The irony is that Network Rail has made headway and has moved towards an alliancing model, bringing their own teams together with train operators and construction contractors, and recently delivered projects using alliances between themselves and other contractors. While this structure has begun to bear fruit, the challenge to break down aspects of the master-servant relationship which can have a negative effect on the success of new rail projects remains. The million dollar question is whether Shaw's proposals can erode this damaging dynamic," he said.

The UK government commissioned a programme of work to "put the rail investment programme back on track" as part of the 2015 Summer Budget, after it became clear that Network Rail had fallen behind and overspent on its £38 billion five-year rail investment programme. As part of that work, Shaw was asked to make recommendations to the government covering the longer-term future shape and financing of the publicly-owned company.

Although Shaw had previously said that she could not rule out recommending privatisation, her final report "dismissed privatisation of the whole company" and instead "focused on solutions that may be appropriate for certain parts of Network Rail as well as for specific enhancement projects". Targeted private investment could lead to "greater autonomy, a different approach to management of the assets, innovation, efficiency and a focus on cost management", as well as cutting costs for the public sector, according to the report.

"The railway remains a growing and dynamic industry," the report said. "However, in a fiscally constrained environment, the government has to make difficult decisions about what railway schemes it can afford to fund. The private sector therefore has a part to play in supplementing the resources available to invest and grow the railway to meet social and economic needs."

Network Rail's operations are currently divided into eight 'routes', plus an additional route for freight. This structure is designed so that it can work effectively with the train operating companies (TOCs) and freight operators working in each area. The report recommends that these routes be restructured to better align with the UK's "political and economic geography", including the creation of a new 'North' route from the northern sections of the current London North East and London North West routes.

The report supports ongoing work by Network Rail to devolve greater powers to the routes, but recommends that this goes "deeper and faster" so that they can better respond to the need of their own customers. Routes should effectively be "empowered to operate as independent divisions within the overall business" under the oversight of a System Operator and Technical Authority, and should be assessed individually against their ability to "meet customer needs and expectations", according to the report.

In a statement to parliament, transport secretary Patrick McLoughlin welcomed the report ahead of a "fuller response" to be published later this year. He also said that the government intended to "explore options" for introducing more open access competition on the UK's main rail lines, following a recent report by the Competition and Markets Authority.