Network Rail’s financial performance in Control Period 6 was mixed, with highlighted efficiencies offset by significant underperformance.
- The Office of Rail and Road (ORR) assessment unveiled Network Rail’s £4bn efficiency gains against a target of £3.5bn, despite pandemic challenges.
- Financial underperformance of £2.8bn by Network Rail was attributed to unforeseen costs such as Covid-19 impacts, industrial action, and inflation.
- Enhanced collaboration and modernisation initiatives contributed to substantial savings, including £859M from improved contracting strategies.
- Future efficiency challenges await Network Rail in Control Period 7, with new ORR targets and oversight measures already in place.
Network Rail has made notable strides in improving efficiency during the 2019-2024 Control Period 6 (CP6), as evidenced by their £4bn savings against the Office of Rail and Road’s (ORR) Price Review 18 target of £3.5bn. However, their financial performance was marred by a £2.8bn underperformance, primarily due to unplanned costs stemming from the Covid-19 pandemic, industrial actions, and severe weather conditions.
The ORR’s assessment detailed how Network Rail’s financial shortfall was exacerbated by the costs associated with maintaining legacy Control Period 5 (CP5) projects. Despite this, the final year of CP6, from April 2023 to March 2024, saw Network Rail achieve £1.1bn in efficiency improvements, marking an annual increase of 18%.
Key efficiency measures implemented by Network Rail included enhanced contracting strategies, which saved £859M, and workforce modernisation efforts, saving £312M. These initiatives featured better contract negotiations, reinforced collaboration between various routes and the central supply chain, and several programmes aimed at optimising workforce management through recruitment controls, attrition management, and voluntary severance schemes.
Nevertheless, Network Rail still managed a significant financial underperformance of £924M during the last year of CP6 alone. The organisation’s chief financial officer highlighted the critical need for ‘tight financial management’ as they attempted to reconcile their expenses, which totalled £14.8bn for operating, maintaining, renewing, and enhancing the rail system during April 2023 to March 2024.
With the conclusion of CP6, ORR’s vigilance has shifted to Control Period 7 (CP7), slated for 2024-2029. The ORR has set a revised efficiency improvement target of £3.7bn over the next five years, monitored through independent analysis by the Nichols Group, which has called for increased consistency in forecasting approaches. A Network Rail spokesperson expressed satisfaction for meeting CP6 efficiency targets, despite adverse conditions, and emphasised their commitment to a £45.4bn five-year improvement plan for continued service reliability.
Network Rail’s CP6 journey reflects a dichotomy of achieving efficiency amidst financial underperformance, foreshadowing future challenges in CP7.
