Annual assessment of Network Rail

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This document is part of how we hold Network Rail to account. 

It sets out our views on Network Rail's delivery to its wide range of stakeholders within its regions and functions, highlighting any current and forthcoming risks as well as other areas of concern.

The annual assessment of Network Rail was previously known as the ORR's Network Rail Monitor. A glossary providing all details of the terms used is available.

The annual assessment is published once a year in the summer. In the autumn we provide an interim assessment in the form of targeted letters to Network Rail addressing specific issues of concern. 

Video: Watch the launch event

We announced the findings of our annual assessment at an event on 20 July.  Our speakers were Chair of the Transport Select Committee Huw Merriman MP, ORR Chief Executive John Larkinson, ORR's Head of Network Regulation Liz McLeod, and Senior Regulation Manager for Scotland Jennifer Cullen. The video includes a round up of Network Rail regional and System Operator performance. Our Director of Planning and Performance Feras Alshaker chaired the Q&A.

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Introduction - John Larkinson, Chief Executive

Good morning everybody. Welcome to this session, our launch for the annual assessment of Network Rail.

My name is John Larkinson, I'm the Chief Executive at the Office of Rail and Road and I'm really pleased you could join us today.

So, a couple of points of housekeeping to start off with. If you've got any technical issues, there's a big ask button at the bottom of your screen, so please press that and hopefully you'll get the information you need.

I just wanted to make it clear that we are recording this session. We're going to put a recording of the whole thing on our website and so you'll be able to see the slides, you'll be able to see basically everything that's covered on the day.

So we'll get that on the website as soon as possible after this event.

So basically just to run through the agenda. I'm going to kick off by just talking a little bit about the wider context in rail at the moment, and particularly the wider context of the work that the ORR is doing.

Then we're going to have a video from Huw Merriman, chair of the Transport Select Committee.

I'm really pleased that he was able to take the time out of what is no doubt an extremely busy schedule at the moment to record this video and he's going to talk about his views on the rail system at the moment.

Then we're going to have a presentation about the actual annual assessment of Network Rail and that's going to be given by Liz McLeod, who is our Head of Network Regulation at ORR.

And then I'm going to pass you on to Feras Alshaker, who is our Director of Planning and Performance, and he's going to host a Q&A session.

So you can put your questions in any time during the session, and there's a facility actually on the page itself to do that. So please put your questions in. We'll get through as many of them as we can.

 We are going to finish promptly at 11, but let's try and get as many questions done as we can. So on that point, I'm going to kick off with that wider context piece. And in particular, what I was going to talk about was a little bit about the recent industrial action, indeed the planned industrial action. 

I want to say a little bit about some of the other reports that we've been publishing, to talk a bit about our periodic review of Network Rail, and that's a process by which Network Rail's funding for 2024 to 2029 is set and the obligations that are going to be put on the company. 

And one of the key reasons for doing that is because of the link to rail reform, which is the final topic I was going to cover, because those decisions about how much money Network Rail is goin to get just basically pasted over to GBR, to Great British Railways.

So that sum of money that is decided by this process will be the sum of money that Great British Railways has got for its infrastructure if and when rail reform goes through. So there's a big connection between all that.

So industrial action, just going back to the June strikes and obviously there's proposals for further strikes to come. The big issue for us there was what could we actually do in advance of the strikes? And we knew certain things were going to happen.

So, for example, we knew that in signalling centres, Network Rail were going to use managers and supervisors to do the work of signallers, who will potentially be on strike.

So that meant we could do some safety assessments in advance, we could look at the plans for effectively substituting some staff. Other - did those people have the right training, did they have the right competencies?

We could go through all that and check it out in advance to provide assurance about safety.

But then also on the day, we had quite a few inspectors out on the ground, as you might see at stations, looking at despatch arrangements, trying to see everything was working safely.

And from my perspective, it's really important that we did that proactive work and we also listen very carefully to any feedback we got in terms of how well things were working on the ground.

In addition to that safety work, our consumer team did a lot of work on websites - were train operators

providing good information to passengers in advance and feeding back to train companies, saying, look, this company managed to put all this information out. You've only put that amount of information out, why can't you give more information?

And I think overall, just to try and summarise it, the industry's plans to run a limited service worked pretty well. A lot of work went into that and it was delivered.

Now, there were some issues and indeed we're still following up some issues and we've been having some exchanges with the unions, listening to their feedback about some issues that occurred on those days and we're still working on those. 

But overall, I think the industry worked very well in terms of preparations for the strikes. However, the underlying issue, which is the financial position of the railway, remains. So revenues are way below pre-Covid levels, there's enormous cost pressures on the system and that links a little bit to the periodic review, because if you look at the plans that are being put forward by Network Rail, they're quite rightly assuming that savings can be made now.

So if savings are not made, that puts further cost pressure on the settlement for 2024 to 2029.

So we do face a quite serious issue in terms of costs and revenues on the railway and that doesn't look like it's going away anytime in the near future.

ORR annual reports - it is what you might call the ORR's reporting season. We've already got four annual reports out and I would encourage you to look at them, three of them, about rail, one is about our role as a highways regulator, covering the strategic road network in England and Wales. Next week, we're putting out our report on High Speed One.

And then in September we're doing a more detailed report on Network Rail's finances and efficiencies. Some of that's covered in this current report we're putting out today. But there's more detail coming in September when we've had a chance to crunch through some of the more disaggregated numbers.

So that's the annual reports and please take a look, I'm going to pick out a few highlights from the reports.

So on the consumer report, assistance can now be booked at 2 hours’ notice. It was only a few years ago now that if you wanted to book assistance, passenger assistance in advance, you have to give 24 hours’ notice.

We challenged the industry to get that done. I'm really delighted, after a fantastic bit of work by the industry that's now down to 2 hours, that's a real passenger benefit. That's great news.

If I pick out a few other areas, securing compliance during the Covid period, new rules are put on international operators to make sure that passengers are provided with the right information.

And although this now seems a long time ago, there were things like the passenger locator forms, there was proof that you'd have certain tests. And we were given the power to fine Eurostar and Eurotunnel if passengers effectively got through the system without providing that information.

And that was a key task for us because it was a really difficult period for the operators.

So we had to be pragmatic, but we also had to enforce the system. And overall, I think we got the right balance on that in what was a really tricky time. Just linking back again to the accessibility theme, we went through a long process last year of checking every operator's website to see how accessible the websites were and then what sort of content information they had about stations on it.

And that was really an iterative process. It meant that each time when we found something, we fed back to operators, we tried to provide constant feedback and the operators responded to that.

And I think overall, you now see a better set of websites. And that again is delivering real value for passengers. Looking ahead, and this again is covered in the consumer report.

A couple of issues there. Under rail reform, we take on a new role, we take on the sponsorship of the Rail Ombudsman. We will have to let a new contract to procure a new Rail Ombudsman.

This is currently carried out by RDG. We published documents, I think, a week or two ago about how we're going to do that, what it's going to look like. So if you're interested in that area, I'd refer you to those documents. 

And again, trying to link a few of these issues together, we've done a lot of work on accessibility.

I'll talk in a bit about how our role might change under rail reform. But just to give you an example, if Great British Railways has to produce, say, a National Accessibility Strategy and we've got a role to monitor and regulate Great British Railways overall, our role on accessibility will change.

We will get a wider role in terms of accessibility because we only cover certain aspects at the moment. So all these things are fitting together and there's connections between them all. Last week we launched our report, the Chief Inspector's report, Ian Prosser's report on health and safety.

The good news was that our railways remain one of the safest in Europe. But one of the things that was picked out by Ian in that report is that there's still quite a few near misses in the sense that there are accidents that could have been worse. And so, as ever, we need to remain vigilant.

But I do want to pick out some significant achievements and ones around the track worker safety improvements. So I think it's a couple of years ago now, we had enforcement notices against Network Rail on that. Network Rail responded really positively.

They've done an excellent job working with everybody, with the unions, with ourselves, with the industry to improve track worker safety. You can see that in some of the stats.

Near misses down, I think by somewhere like over 90%. That's really fantastic news because it means people are safer. So some really positive achievements there. Themes for the year ahead were picked out in that report and some of them were about change. So there's a lot going on.

Rail reforms, for example, the financial pressures on the industry and hence managing change, responding to uncertainty and change, It just remains absolutely crucial.

One of the things we are working on over the coming year with the industry is collecting better health data, because that data is still not where it needs to be. We're going to continue to work with the industry to deliver health and safety improvements, but there are times when we do need to take action, when you take action through prosecutions, through enforcement notices.

And one of the things I just put it up here to illustrate some of the range of issues we've tackled during the year. And what comes out to me from the enforcement notice is that range - it's anything from health issues to competence issues to issues on construction.

And so we still have a steady stream of enforcement work we need to do in terms of health and safety to set against what was undoubtedly a series of achievements that the industry has made overall.

Quick update on PR23, the periodic review. There's a lot going on there, but again, I want to try and make some connections. So the first one, schedule 4, schedule 8, so possessions regime, that's engineering works and schedule 8, train performance. Rail reform is coming and Huw Merriman is going to talk about this in a video we'll be playing shortly. But one of the things we're trying to do is to keep changes to a minimum while enabling rail reform.

What does that actually mean in practice?

What it means is that in a number of areas we are moving to a hybrid system. These regimes will work differently for organisations within Great British Railways to those outside Great British Railways.

So if you've got an interest in terms of what's inside, what's outside, how that works, I would really encourage you to take a look at some of the documentation there. And we're also working on how we hold to account in the next control period.

Because Network Rail is effectively part of GBR, how does that affect our holding to account of the infrastructure aspects of what Network Rail does? So, again, I'll refer you again to some of these documents that are coming out shortly.

It's decision time come the autumn, late autumn, in terms of how much money does go into railway infrastructure, Network Rail infrastructure for the period 2024 to 2029 - that's the UK Government and Scottish Ministers need to take decisions.

And Network Rail have provided a business plan effectively setting out options for the UK Government and Scottish Ministers. We spent a lot of time assessing that plan. We provided formal advice to the governments.

That advice only gets published later in the year, at the time when the government's decisions are produced, but we're providing ongoing advice on particular topics and that's anything from impacts on performance to interactions with High Speed Two, etc.

So a lot of work going on there to provide advice to governments for what, frankly, is going to be some pretty tricky decisions that need to be taken in the autumn. 

And that just brings me onto the final topic I wanted to cover, which is around rail reform and rail reform legislation. So the Department for Transport has recently issued a consultation document on legislation and that's consultation responses by early August, and we'll be sending a response to that, which obviously, as with all responses, these sort of things will be public.

But there's a couple of key things, really, broadly speaking, most of the current legislation stays in place, and that means that, from my perspective, for the ORR, pretty much everything that we're doing now, we're going to be doing in the future.

We will remain a competition law enforcement body, we'll maintain consumer law powers, but some things will be different.

And the crucial thing that's different is that we will now be responsible for holding the whole of GBR to account. GBR will have a licence, Great British Railways will have a licence and we will enforce against that licence. And so that will be quite a big change for us.

It will give us a broader role, a bigger role in many areas, for example, in terms of performance, and that will be key differentiator from the current position.

There's also a couple of specific changes to ORR's duties, which I won't touch on now, but it's part of effectively, again, that package of reforms to try and get everything to fit together in terms of how the system works. And just a final point on that, what's going to happen now?

So we've got that consultation document out on legislation that's the Department for Transport consultation document, but I think it's fair to say that there's a lot of policy decisions to be taken,

there's a lot of work to be done on actually developing policy. So, for example, if you think back to the White Paper, it talked about a new access regime, talked about greater devolution.

What does that actually mean in practice?

And there's quite a lot of things to be done between now and the stand up for Great British Railways in 2024. We will continue to provide independent advice during the whole process, as we've been doing now, these are government policies, but we will provide advice and support wherever we're asked to do so.

But I suspect that there will be issues now in terms of what actually needs to be in place by day one and what could be put in place later, given how much there is to do.

And if you think about what actually really does need to be in place by day one, well, first of all, you need to be able to run a safe railway and a reasonably high performing railway.

You've got to be clear on what the roles of different bodies are. You need a licence, otherwise there's nothing to enforce against. And you need some commitments from GBR, otherwise there's nothing to hold GBR to account against.

So I think there's some minimum requirements or some further requirements, but there's a lot of work needs to be done and ORR will continue to play its part in the development of that process.

So I'm going to stop there. Happy to take questions on any of that later on but going back to what I said right at the start, I'm really pleased that

Huw Merriman said he was going to record a video for that. He's Chair of the Transport Select Committee, he takes a very, very keen interest in railways and we're now going to hear his views and we're going to play Huw's video.

Huw Merriman MP, Chair of the Transport Select Committee

Hello. It's great to be at the Office of Rail and Road's Network Rail Annual Assessment Report Launch. I'm sorry I'm not live it's actually, because we're covering another matter with the Transport Select Committee, which is very relevant to the Office of Rail and Road, but more on the road side of things.

But I'm going to talk to you about the Covid recovery, the rail reforms that I very much hope that we will see this year, and some of the current issues and challenges which, in addition to growing back from the pandemic, the rail industry is facing, first of all, COVID recovery.

So things are improving.

And I think it's important to be optimistic and positive when we look at the recovery from the last two years. In 2021 to 22, we have 990,000,000 passenger journeys made on the network and that's more than double that of the previous year.

So a positive, but of course, it's still only 57% of the 1.8 billion journeys which are made in the year 2018 to 2019. And what we've seen, if we look at periods from April 21 to March 22, is a wide disparity between passenger numbers on different parts of the network.

So passenger numbers on LNER services as an example, were over 80% of all previous levels in 21/ 22, whereas on most parts of the rail network in Great Britain, so including MerseyRail and indeed  London Underground, passenger numbers remained below 60% of pre-pandemic levels.

Of course, what we're seeing here is a growth on the leisure market side of things, but a real drop off when it comes to commuting. And indeed, we only have 15% of the five day commuter numbers back with us. So things have changed, in my view, will always remain changed. People can now work from home, they don't have to come to the office for five days and they are not doing so and they save the money and they're not going to put it back.

So I think the challenge is growing rail, where consumers and passengers are going to spend their money, and that's obviously important. So overall, this financial year, whilst passenger numbers have been on an upward trajectory, they still remain below prepandemic levels. And of course, the treasury looks at the total sum that's raised and of course, that has really sort of dropped off.

Let's just talk a bit about rail reform. I'm very excited to finally see mention of a Transport Bill in the Queen's speech. We expect it to be autumn, but as you may have heard, there are things going on in Parliament which I'm afraid to say are rather delaying programmes.

But the expectation is that the Williams-Shapps plan for rail will be at the forefront of that Transport Bill.
There's a consultation which closes at the beginning of August of this year. Many of the proposed changes concern the creation of a new governance framework for the sector. But we've also got within there, the sort of intricate powers for the Secretary of State to appoint an integrated rail body which will allow for the creation of Great British Railways.

The fact that GBR will be a public body sponsored by the DfT, which will operate under a statutory licence issued by the Secretary of State and enforced by the ORR.

And I'll talk a bit about the ORR and more roles for the body. And we also see that most of the powers of the Franchising Authority will transfer to Great British Railways. But notably, the government proposes that the Secretary of State will start, or at least I should say, get to determine which services GBR will be responsible for providing under the new passenger service contracts and the process GBR must follow when selecting an operator.

And so what that really shows is that whilst GBR is the sort of TfL of the structure, if we think about how London transport runs, the mayor has the arms length body, it's TfL, but then TfL then enters into contracts with Network Rail and indeed the concessionary provider. One would like to have seen the same set up when it comes to GBR.

But firstly, the notable part is that it will be Network Rail that will provide that role, first of all, albeit in a very different entity, but it will still be within the leadership of Network Rail and retain some of the staff of Network Rail.

And so effectively, the concern I've always had is that Network Rail is, if you like, marking its own homework. I know that they would find that concept unfair, but there's always a concern when you've got the same body involved in two parts of the separation of power's principle, but then you've still got a lot of power with the Secretary of State in terms of the responsibility and the mandate that the Secretary of State decides to give to GBR.

I'll talk a bit more about the role of the ORR because in addition to the Secretary of State's levers, the Orr will have a role which will expand in order to allow it to regulate GBR.

The new responsibilities will enable the ORR to review the performance and efficiency of GBR and that will be placed on a statutory footing. I think that's really important because one of the points we've made before when looking at the ORR's role, actually, when it came to the roads with National Highways and smart motorways in particular, is that the Office of Rail and Road has a real role to not just scrutinise and provide that independent thought, but really to add value as well as guidance. And I think that there's a real role for the Office of Rail and Road.

And going back to my concerns that, have we got the complete separation between GBR and Network Rail, then I feel that the ORR will actually provide a lot of robust scrutiny and comfort to the likes of our committee that GBR is well set up and well able to deal with Network Rail as a counterpart, rather than as the same entity.

So it will be really good to see the regulator monitoring the delivery of GBR's objectives, which will be in the five-year business plan and the licence issued by the Secretary of State. And it will also be good to see the powers of enforcement delivered to ensure that GBR complies with its licence and that the ORR has got that role to play.

So I'm very positive about the setup of GBR. We've been waiting a long time. I'm positive about the Transport Bill coming forward, and I'm really positive about the role of the ORR in providing that scrutiny and regulatory role over GBR. 

I just want to talk in my last section about rail reform in a different guise. There's huge challenges on rail and actually we see them today. The reason why I'm in this t-shirt is because it's a sweltering hot day and I know a lot of people will be working on the transport system to maintain it and ensure the asset is protected and I doff my cap to all of the people that work so hard on our railway.

But I wanted to just touch on the proposals for industrial action, which I really feel could hold our railway back. We have to have an honest conversation here.

I talked right at the start about the Covid recovery where there's some bounce back, but we have seen £16 billion worth of taxpayer money go in to support rail. We haven't seen any compulsory redundancies, and rail has been well protected if I compare it to some of the horror stories to the staff working in aviation. And that's because the rail workers worked incredibly hard, but in order to get them the pay rise they want, we're going to have to see some reform in working practices.

I feel these are long overdue and will be a positive to the workforce because I think we'll have a more dynamic rail job once these reforms have come through.

There are far too many parts of the rail job which exist, notwithstanding that the function is no longer really utilised in the manner that it was. So you could look at our ticket offices and say, why have we got roughly the same amount that we had 30 years ago when only just over 10% of tickets are now bought over the counter? It's really important to free up those resources and actually put them into different customer facing roles where they can be much more assistance to the customer and really help the customer get a better experience and then get more people on the railway.

So I really hope for more flexibility from the unions. It's certainly clear when we had the unions and Network Rail and Steve Montgomery from the train operators in before the committee last week, it was clear unions were resistant. I think part of this is on fear. I'm pleased to see Network Rail has taken off the table compulsory redundancies or the risk of those, because it must be possible, if you look at the current age cohort within the railway, that some people will choose to want to exit it, and that may bring in more diversity as that occurs. But that's off the table now.

There was a 4% pay rise backdated for the beginning of the year, 2% for next year, and a 2% add on in return for the reforms. So that's 8% over two years. That was sadly rejected.

And of course, there was no offer as yet because the train operators have not got to that negotiated stance with the unions to come up with a pay package on the trains. But I really do hope for reform.

I think that we cannot have industrial action on the railways. On the one hand, it cripples it for the people that need the railway the most, but on the other hand, it actually demonstrates that, unlike a few years ago, and as an MP in the southern area, I knew what my inbox felt like when there was a rail strike because people couldn't get anywhere and it shut our local economy down.

Now, as has been demonstrated through strikes, and indeed through the heat issues we've had this week, people through the pandemic have got used to working from home. The economy continues to function when the railways don't, and that's a real worry for the railways because it means that people will no longer see it as reliable if it's prone to issues which include industrial action.

So if we're going to regrow our railways and make sure the jobs are there for the railways, and my goodness, they will be. When you look at the plans for integrated rail, HS2 and other exciting projects, there's a great future, but we have to reform and move with the times.Covid has taught us that we have to change the way we operate and that ultimately means the staff within the workforce, but also all the organisations that make up the rail industry. I'll finish by thanking everybody, the ORR and those that it regulates and that we scrutinise as well. You do an amazing job.

It's great to see this report again. I'm always really pleased to work with you all. I'm very excited about rail. I think it has a great heritage which provides it a real basis and a place in people's hearts, but it also has a great future. But it will only have that future if we continue to modernise, deliver reform and actually make it fit for 2022. Thank you very much indeed.

John Larkinson

Right, it's always good to hear from Huw.

We work very closely with Huw and the Transport Select Committee and I think, as you can see from that video, he's really passionate about rail. I probably ought to just pick up one point that he raised, and that's about ORR's changing role under rail reform, because he was saying the importance of the ORR adding value under the rail reform system. And one of the things that we're going to have to do is, we're going have to change as an organisation, because, for example, we need to build capability in some areas that we don't currently have that capability. And that's because we'll have a bigger and broader job holding Great British Railways to account. Those plans are already in place.

We're working on them with government and they will involve quite a few changes going into next year, which will be about new capabilities, new functions and we're working on them now, and we've got to fit them effectively with the Department for Transport's operating model, the GBR operating model.

But those sort of things are in hand, and we need to do that. People might want to pick up on some

of Huw's points later on, but what I'm going to do now is just move us on a bit. And I want to hand over to Liz McLeod. Liz is our Head of Network Regulation.

She led the team that put the annual assessment of Network Rail together. So I'm going to hand over to Liz. Liz, over to you.

Liz McLeod, Head of Network Regulation

Thanks, John. And good morning, everyone.

As John said, my name is Liz McLeod and I am the Head of the Network Regulation team here at ORR.

And our team lead on production of the annual assessment of Network Rail, which is the report that we've published today. So I'm going to take you through some of the key messages from our report.

Before I do that, I just wanted to recap on the purpose of the report. So at ORR, we hold Network Rail to account for its management of the rail infrastructure across Great Britain. We monitor areas such as passenger service performance and freight performance. We look at the targets that Network Rail has set itself, and we monitor delivery against those targets.

We also look at whether Network Rail is delivering against its planned asset renewal volumes so that it 
can ensure that it's maintaining good reliability of its assets and also longer term sustainability of the network. We closely monitor Network Rail's financial performance, we look at whether Network Rail is
delivering against its efficiency targets and we also compare actual income and expenditure against each region's CP6 delivery plans.

And we also look at a range of other areas, for example, environmental performance. Our annual assessment presents our views on those areas but also includes some narrative on network Health and Safety performance within the year. Although, as John's already mentioned, we've recently published a more substantive report in that area just last week and that's available on our website. Our report covers the third year of Control Period 6, which is from April last year to March this year.

It aims to mirror Network Rail's devolved structure so that's shown in the map there, so that's the regions and the System Operator. The report itself contains a network-wide performance chapter which compares and contrasts the regional performance, highlighting areas of good performance and also areas for improvement. And it also includes a chapter on the System Operator function which now has responsibility for freight operators as well. So as I said I'm going to take you through the key messages now. So if we start off with passenger and freight service performance.

So key message for year 3 is that passenger service performance declined from the record levels that we've seen in year 2 of the control period and that's largely because the network has become more congested as passengers return to rail, more trains running on the network.

However, performance is better than it was before the pandemic started. Our report highlights concerns with two regions in particular. So in Wales and Western, the data available for performance in Wales and Western showed that it was a bit of an outlier.

The decline in performance for the Wales and Western region was much starker than in other regions and when we challenged Network Rail on this we had quite a good response from the Western route.

It was able to demonstrate that it had initiatives to take forward to drive improvements in performance. However, the response from the Wales route was less comprehensive and we have been working closely with that route to ensure that it understands the reasons for poor performance and also that it has targeted plans in place to drive improvements.

The response was quite different in Scotland.

So again, performance in Scotland declined in year 3, but working with ScotRail Trains Ltd, Network Rail proactively put in place a performance improvement plan and this provided us with evidence that the region understood the drivers for poor performance and it had a plan with specific actions to take forward which would hopefully reverse that trend. So it's planning included specific actions on, for example, delivery unit improvements and also specific initiatives to, for example, improve trespass.

So just looking back a bit, in February 2020 we identified poor train performance in the North West and Central region and since then we've worked closely with the region. We launched an investigation in 2020 and we work closely with the region to ensure that it delivers improvements. Last year in May we published an update and we said that the region had made good progress against a number of recommendations, but it hadn't made sufficient progress to close down the investigation.

But we were in November able to conclude the investigation, noting that we were satisfied with the region's response. And also we had started to see an improvement in performance. Moving on then to freight performance. So Network Rail's delivery of freight performance also declined in year 3 as the network became more congested. Most regions fell short of their annual finance performance targets except in Network Rail Scotland, where we've noted a significant improvement from year 2 of the Control Period. Wales and Western again had the largest shortfall against target. 

And on the last bullet here, I just want to touch on some work that we've been doing in relation to a provisional order that we issued to Network Rail in 2018 on improving performance management capabilities.

So last year we commissioned a review of Network Rail's approach to its joint performance strategies with train operators. This found evidence of good collaboration and there was evidence of strategies being delivered, but more is needed on monitoring, reporting, delivery of those strategies and we think that could be improved. This is an important area for us and we'll continue to monitor that.

So, just moving on now to some of the safety key messages. In our annual assessment we note that Network Rail has performed well against a range of indicators. As John has already said, we have one of the safest railways in Europe and John's already mentioned that it's really important that Network Rail stays focused on the day job in amongst a period of significant change within the industry.

During the year, our safety colleagues started a programme of inspections to assess Network Rail's response to the recommendations from Dame Slingo and Lord Mair following the fatal Carmont derailment in 2020. The team reviewed Network Rail's action plans and inspected its management of drainage assets. They also monitored Network Rail's response to extreme weather events.

In response to the recommendations, Network Rail has set up a dedicated steering group, which we think provides good oversight and independent challenge. But we found that progress has been difficult to track because implementation is split between the regions, Network Rail's technical authority and also the System Operator. So Network Rail needs to ensure sustained, coordinated oversight of the many complex and interdependent work streams in order to deliver long term improvements. And then finally a point that's already again been covered by John, John has touched on the track worker safety improvements. And in our report we confirmed that at the end of year 3, the use of lookout warning has reduced by 98% since we served the track workers safety improvement notice in 2019.

That's significant progress.

Moving on now to Network Rail's expenditure. So recognising the increased financial pressures from largely unanticipated cost increases during the pandemic, Network Rail increased its CP6 efficiency target from £3.5 billion to £4 billion, and most regions, as shown in this graph here, have either met or exceeded their annual efficiency targets. However, the Southern region delivered less than planned.

It was 8% behind target, and Network Rail Scotland delivered significantly less efficiencies than planned. It reported £64 million of efficiencies in the year, which is 21% behind its target of £82 million.

While Network Rail has largely delivered against its efficiency targets it has continued to financially underperform, with overall financial underperformance sitting at around £900 million across the first three years of the Control Period. And as I said, this is largely due to factors relating to Network Rail's renewal activities which have been impacted by the pandemic and also recently inflationary pressures.

Risk funds are also a concern. They are lower than might be necessary to meet future financial risks. This is because risk funding has been significantly drawn down in the first three years of the Control Period for issues relating to the pandemic, the impact of inflation, and also to fund additional costs.

So those costs are associated with the Lord Mair and Dame Slingo recommendations and also the track worker safety initiatives. So Network Rail needs to carefully manage its financial risks going forward, with limited risk funding remaining, and in particular the risk I think we mentioned in our presentation last year but risk remains a particular concern for Network Rail Scotland. During the year the region has decided to pause delivery of some of its renewals to create additional funding for risk, and it will shortly decide whether these renewals get cancelled or deferred to the next Control Period.

And as John has already mentioned, we will go into more detail, much more detail in our report in September, we publish our Annual Efficiency and Finance Assessment and again that will be available on our website. So now on asset management,  Network Rail met it's network-wide target for renewals, but delivery was really mixed across the regions. Four out of five of the regions did not achieve their targets.

Eastern was the only region to exceed its target. North West and Central, Southern and Wales and Western delivered between 91% to 96% of its renewal volumes for the year. And Network Rail Scotland was the lowest performing region, delivering 87% of its planned volumes. 

And I wanted to just touch on asset sustainability. So we measure asset sustainability using a measure called CSI or Composite Sustainability Index, which takes account of the remaining life of assets.

Three regions broadly performed against their end of CP6 CSI targets, but Wales and Western and Network Rail Scotland performed worse. And Network Real Scotland is now forecasting a decline in asset sustainability below the levels that it committed to in CP6. And that's linked to decisions that it's  having to take to defer or cancel work. Asset reliability declined also compared to year 2.

Wales and Western missed its target for service affecting failures by the greatest percentage, which mirrors our concerns on performance, and sustained focus is needed by the region to reverse that trend. More positively in year 3, Network Rail did exceed its network-wide environmental target and it's made good progress with implementing its environmental priorities. It has exceeded its network-wide targets for reusing and recycling waste, diverting waste from landfill, and reducing non-traction carbon emissions.

It did, however, finish year 3 behind target for reducing non-traction energy use, which is linked to increased activity in its stations as lockdown restrictions throughout the year. Just to conclude this section, our report highlights three specific areas for improvement, predominantly on structures examination compliance.

During the year we continued to focus on wanting to improve Network Rail's delivery of structures examinations. We undertook a review of overall compliance for structure examinations and found non compliances in all regions. This matters because if the examination process is not completed at required intervals, then faults could be undetected or be detected, but not properly assessed. Failure to manage the examination process could also impact Network Rail's ability to plan its maintenance and renewal activities, which is particularly important at this time as Network Rail's planning ahead of the next Control Period, CP7. 

The other point is about Network Rail needing to manage its lineside vegetation, particularly to become more resilient to extreme weather. So while the report confirms that throughout the year Network Rail did take mitigating action ahead of extreme weather such as the introduction of planned speed restrictions and also closure of sections of the railway, more work is needed to assess the vulnerability of lineside vegetation assets.

Strong winds and consecutive named storms in quarter 4 of year 3 resulted in more incidents of trees on the line and also train performance in autumn declined with the highest number of wheel slip and track circuit failures due to leaf fall since the start of CP6. So more improvement needed there.

And then finally, we've identified some other areas where Network Rail needs to improve its asset examination backlogs and that's specific to buildings and earthwork examinations. So, just to conclude and recap on the summary of key messages. So train performance has declined, but largely kept higher than before the pandemic. Performance in Wales and Western, as I said, is an outlier, has declined faster, and we are seeking targeted intervention improvements there.

On safety Network Rail has performed well against many safety indicators, but it needs to manage future change carefully. On finance, Network Rail has delivered  strongly against its efficiency targets. However, wider financial performance has declined and future risks need to be carefully managed. And finally, on asset management. Delivery of asset renewal work varied across the regions and performance of infrastructure was also mixed and all regions need to focus on improving structures examinations. 

So I'm now going to play a short video which is narrated by our Senior Regulation Managers, which aims to set out our views of the System Operator's performance and also each of the regions performances. Thank you.

Video presentation

Hello, I'm Alex Tyler, the Senior Regulation Manager for the System Operator. The System Operator is the business unit within Network Rail that is responsible for strategic planning, managing changes to what the network delivers and producing the timetable.

Hello. My name is John Trippier. I'm the Regulation Manager for the System Operator. In our annual assessment this year, we reported that the System Operator continued to respond effectively to the timetable demands of the pandemic and supported three major regional access and timetable projects.
However, it made limited progress on reforms to the timetable development process. The System Operator also took action to support the performance of freight and national passenger operators, and it helped to deliver freight growth in Scotland.

Hello. I'm Stephanie Blyth and I'm the Senior Regulation Manager for the Eastern and Southern regions.
Passenger train performance for the Eastern region was better this year than before the pandemic and Eastern had the highest on time performance of all the regions which was driven by strong performance on the Anglia route.

Eastern delivered significant renewal and enhancement work on the East Coast mainline and Midland mainline, and it achieved or exceeded its plan in four out of six of the asset types for effective renewal volumes. However, it must deliver improvements to its structures examinations. Finally, our assessment found that the region's delivery of efficiencies was better than target.

Overall, Southern's passenger performance declined during the year from last year's peak, but it
was better than before the pandemic. The region delivered well on enhancement projects, including Denmark Hill Station and asset renewals. However, our assessment highlights concern over the backlog of structures examinations. And finally, we found that the region is well prepared for year 4 of the Control Period, with higher than average renewals authorised and access secured.

Hello. I'm Patrick Crowley and I'm the Senior Regulation Manager for Wales and Western and North West and Central regions. I lead on holding Network Rail to account in both these regions. In our annual assessment this year, we report that the Wales and Western region delivered well against its efficiency and environmental targets. However, train service performance and asset management must improve. Train service in the region has deteriorated more quickly during the year than in other regions.

We're challenging the region on its contribution to train performance. The region's asset reliability worsened during the year and this has contributed to poor train performance. The region needs to take action to ensure it delivers its renewal plans. Wales and Western did perform better in other areas.

It delivered strongly against its environmental outcomes target. The region also performed well against its efficiency target delivering £121 million of efficiencies in the year. For the North West and Central Region we report that their overall scorecard performance makes them Network Rail's top-performing region.

The North West and Central Region retained much of the train performance gained during the pandemic and delivered its planned efficiencies. However, the region underdelivered on asset renewals and needs to improve asset reliability. In particular, the region needs to improve track and electrical power reliability. North West and Central worked hard to retain train service benefits achieved in the previous year, although performance declined, the region retained much of the punctuality gain achieved during the pandemic. 

Hi, my name is Jennifer Cullen and I'm the Senior Regulation Manager for Scotland. I lead on holding Network Rail to account in the Scotland region and manage our close engagement with its funder, Transport Scotland. In our annual assessment this year, we report that Network Rail Scotland's overall performance was mixed and we highlight concerns about the region's ability to fulfil its CP6 requirements. Network Rail Scotland has not hit its financial targets for the year or its performance target for Scotland's main passenger operator, ScotRail.

More positively, it did achieve its target for the Caledonian Sleeper and its freight performance target. Overall, it was a challenging year for the region, but we continue to work closely with Network Rail Scotland to identify areas of concern and ensure these are addressed to deliver improved outcomes for passengers and freight operators in Scotland.

Q&A

John Larkinson: Right, thanks very much, Liz, and thanks to everyone who's just recorded those videos too. We've covered a huge amount of ground there. So without any further ado, I'm going to move us on. We're going to move over to the question and answer session and I'm going to hand over to Feras.

Feras Alshaker: Thanks, John. Morning everybody. A few questions and comments on the Slido. We've got Jennifer Cullen joining us in the room, who's our Senior Regulation Manager for Scotland. We've also got Paul Appleton who is our Deputy Director for mainline railway in safety. So I think the first question is probably for Paul, actually, it comes from Andy Shaw and it says what plans/thoughts exist to integrate human factors into the industry. 

Paul Appleton: We've been working on human factors for a long time. It's not an issue that's going to go away anytime soon. We've got issues with fatigue that still keep popping up across the industry in both Network Rail and train operating companies and freight companies. We've got publications out there that set out our concern on the question of fatigue and other human factors, issues and we will continue to work with it.

There is a much longer term piece of work about whether or not we strengthen our assessment criteria relating to safety cases, safety certificates and authorisations to raise the profile of human factors.

But that will need a lot more work on the policy front and possibly a change in the law to do that.

Feras Alshaker: Thanks Paul I think probably the next couple are for you actually, so don't go anywhere. Is there any thinking towards safety being the presence of defences rather than the absence of accidents?

Paul Appleton: Absolutely. If you just go back to the famous Jim Reason Swiss cheese model. It is all about whether or not you can put control measures in place to manage those risks and depends on the scope of the risk and the capability for harm as to whether or not you've got an appropriate number of control measures in place, that's what I'm interested in rather than whether or not you manage to hurt anybody. Just because you haven't hurt somebody in an accident doesn't mean that your system is working properly. It just means that chance has played you a good hand.

Feras Alshaker: Thanks, Paul. I'm going to throw you the next one as well. How well is Network Rail dealing with the impact of the recent high temperatures in the UK? Well, 40 degrees centigrade is beyond the design limits by some considerable margin for track and OLE. At some points yesterday, the weights on the OLE were actually hitting the ground and the track would certainly have buckled.

So unless we want to take a fundamental look at those design limits, we're going to have to go with what we did, which was shut down the network in those extremes. Otherwise we go back to the more normal precautions of having to put people out to keep an eye on these things. And Network Rail has done a lot to improve its remote monitoring of track temperatures, so you know where it is, but also it's around improving its knowledge of where there are potential weaknesses in its track and OLE systems.

Feras Alshaker: Okay, thanks. So I'm going to go the next question I'm going to offer up to our panel, which is from Mark Binnie, and it says, if five day commute passenger numbers have only returned to 15% of pre-pandemic numbers, when will the congestion that affects freight operators be reviewed?

Does anybody want to try and have a go answering that question?

John Larkinson: So we're undoubtedly seeing different patterns of usage across the whole network now. And clearly in some areas that means there's fewer trains running. People, of course, already have access rights, and there's an issue about how the access rights exercise over time, which I suspect will be a wider issue. But I think more generally what we're seeing is that where there's been attempts to take what you might call a strategic view of the use of capacity and the timetable networks like on the East Coast, where there has been an attempt to try and say what should be given priority on the East Coast.

Those things have turned out to be very very difficult in practice and now on a couple of occasions attempts to fundamentally revisit what you might call the use of capacity on the network has proved really difficult to bring about. And going back to the point I made on rail reform, this is one of the things we now need to tackle. What exactly are the issues and problems around access and timetabling on the network and what do we intend to do about them?

That goes back to my point now about, I think we're reaching some decision points on actually what do we want to do differently and I personally think we're somewhere away from that at the moment.

Feras Alshaker: Thanks John.

Next question, I think, is for Liz. It's from an anonymous questioner, is Network Rail's £4 billion worth of efficiencies target deliverable?

Liz McLeod: So I would say yes, but caveat that there are some challenges ahead.

Mentioned throughout my presentation about inflationary pressures and also it is determinate on Network Rail delivering specific efficiency initiatives in the final two years. The leading indicators that we look at - again we've reported on those throughout our report - suggest that the regions are broadly well prepared to deliver on those. I would caveat though, again, not in Scotland maybe. I think it's going to be a bigger challenge in Scotland and I don't know if Jennifer, you've anything to add to that.

Jennifer Cullen: Yes, it is going to be a more challenging picture in Scotland, when we look at the leading indicators as a whole, most regions seem fairly well prepared to deliver efficiencies going into year 4.

But in Scotland, when we look at how well prepared they are to deliver efficiencies, only 41% of Scotland's efficiencies in year 4 have initiatives in place or well developed plans, which is the lowest of all regions and significantly lower than the national average of 75%.

So we do have some concerns there and we're working very closely with the region to understand what they will be able to deliver over the rest of the Control Period.

Feras Alshaker: Thanks. There's some comments on here. This question is there's been little specific reference to the requirements of rail freight. What will ORR do differently in the future to support and promote rail freight growth? John?

John Larkinson: Yes, of course, that question has got so many different dimensions to it. Ultimately we have statutory duties that we have to follow and we follow them. Where we've got, for example, specific obligations like you've got an issue in Scotland where there is a rail freight growth target and we've worked very closely with Network Rail and indeed with Transport Scotland about how to deliver that target. So where essentially government has specified something, something it wants to see done about rail freight, then of course we work it out, we follow it up, we monitor it.

Just one more point on that. There's been a lot of  discussion about what will be done differently when Great British Railways is in place and whether there'll be a national freight strategy of some form and clearly if there was, and if Great British Railways was required to deliver it, then that will be part of the holding to account of Great British Railways where ORR would have a key role.

Feras Alshaker: Thanks John. I think this next one's for you as well. The Government is expecting considerable cost reductions from railway activity under GBR. Will ORR be offering up savings to Treasury too?

John Larkinson: That's certainly a fair question, a fair challenge, yes. So just in terms of awareness about how we are funded. Ultimately, we have to set our total level of funding directly with the Treasury and then we put levies on the industry to recover it. Not surprisingly, if you're negotiating directly with the Treasury, the Treasury do require annual efficiency savings, so I'm acutely conscious of that.

But more generally, many people on the call will be aware of the fact that all parts of the Civil Service have been asked to respond to this new initiative about how to reduce 90,000 Civil Service jobs over the next couple of years. A couple of weeks ago, I sent in our response, and that response is about how we could make 20%, 30% or 40% savings and what the impact will be. So at the moment, I personally feel like I'm in a fairly direct discussions about costs and staffing levels for the ORR, as indeed many parts of the Civil Service are. So, yes, we will play whatever part we need to do in that process.

Feras Alshaker: I think we're starting to run out of time, so I'm going to take one more question. I'm going to direct this at Jennifer. Jennifer, why is Scotland's risk fund considered a significant concern?

Jennifer Cullen: Yeah, that's a good question. So, Scotland's risk fund, because of the devolved funding arrangements, is ringfenced from England and Wales. So in England and Wales, if a region requires slightly more risk funding, they can offset that against probably another region that maybe requires a little bit less. But Scotland's funding is exclusively for Scotland. During the pandemic, Scotland incurred slightly higher Covid-related costs than other regions because of different circumstances or different of different circumstances, so different lockdown arrangements in Scotland, and the impact of delay compensation arrangements was slightly different north of the border.

So more funding was drawn down from risk to deal with those because those weren't expected in CP6. Consequently, Network Rail Scotland made decisions to defer some renewals and potentially further renewals to release funding to bolster its risk fund, and that's had a consequential impact on asset sustainability, which we talk about in more detail in the annual assessment. So we are concerned about, if Network Rail Scotland doesn't have sufficient risk funding to cope with future cost challenges over the remainder of CP6, for example, I think we're probably all aware of quite high inflation levels at the moment, and we're working very closely with the region to understand what risk lending they have left and what risks they're forecasting to see over the remainder of the Control Period, to make sure they manage that effectively.

Feras Alshaker: Thanks, Jennifer. Comprehensive answer there. Thank you to everyone that submitted a question. Sorry we haven't been able to get to all of them. I'm going to hand back to John now.

John Larkinson: Thanks very much Feras, we have run out of time. I just want to thank everybody here at ORR for that presentation. I hope you found it really helpful.  But can I just say to finish, really appreciate everyone joining the session today. Thank you for coming to this. I hope you find it helpful and we look forward to seeing you again soon. Thank you very much indeed.

Previous assessments

Previous assessments are listed below. For earlier publications visit the National Archives (2013 to 2016). Older publications including our first edition in 2005 can also be found on the National Archives.