Enabling better decisions through a more joined-up view of rail finances

A blog by John Gerrard, Finance Director

19 February 2024

Since the first passenger train to use steam ran between Stockton and Darlington in 1825, Britain’s railway has grown and changed enormously.

Rail lovers will be familiar with the story on passenger numbers, which have boomed from around 400 that day to 1.8 billion in 2019. The advances in technology, from steam trains, to diesel, and now to electric. As well as the prioritisation, in recent decades, of safety.

But alongside these changes, the way that rail industry finances and funding worked also became increasingly complex.

Untangling this complexity is a fundamental part of GBRTT’s mission to create a simpler and better railway for everyone in Britain, but rail industry finances can be an opaque, confusing world. So, I wanted to explain why this aspect of our work is so important, to dive into the history of the set-up we have today and to explain, over a couple of blogs, how we’re working to address the challenges and limitations of this system.

A history of rail finances

The funding and finances which underpin how we currently operate track and train have their roots in the introduction of The Railways Act in 1993.

The Act saw train operators being funded to run passenger services and Network Rail (then Railtrack) funded to operate, maintain, and renew the infrastructure. This separated the revenue received from passenger fares from the costs of the upkeep for assets like track, signals, tunnels and bridges.

Since the COVID-19 pandemic, industry finances have become more complicated because passenger services revenue and costs, and the risks associated with this, now sit across both the Department for Transport and Treasury.

It is a very complicated web to untangle. If you would like to know more, Andrew Haines, GBRTT Lead, laid out this very complex system in detail when he delivered last year’s Beesley Lecture.

The consequences of splitting cost and revenue

The issue is that today, although not impossible at a macro level, it’s hard for any one person or organisation to easily access a single, combined financial picture. And that makes it very difficult to weigh the trade-offs of decisions across the whole rail system, whether nationally or locally, as opposed to just parts of it.

It’s important to note that decision-makers must also consider factors alongside money – for example, the government’s five strategic priorities for rail include environmental sustainability, long-term economic growth, meeting customers’ needs and levelling up, as well as financially sustainability. This tool provides one lens through which decision-makers can view the operational railway.

It is by no means the only lens that they will apply. But being able to easily see, for the first time, a detailed whole-industry financial picture is crucial if we’re to deliver a more sustainable financial future.

And developing the capability of the industry to think in this way is an important step in being able to fully understand both the scale of challenge and how we might deliver efficiencies across the system and better align to grow revenue, too.

What sort of problems does this cause?

All parts of the industry act rationally within their own structures, according to their own incentives. But the current arrangements make it much too difficult for joined up planning and joined up decisions to be made by all parts of industry. Accountabilities for the different funding pots sit in different organisations and we previously didn’t have the detailed tools to view these together and make the best collective decision.

For example, today, if extra passenger services are added between two places it is currently difficult to access one source of information to understand accurately whether the extra revenue brought in by passengers will be greater than the costs this revenue creates from managing and maintaining the infrastructure to deliver the additional train services. In the current structure, the information and accountabilities for these are, broadly, held by different organisations.

Since the pandemic, we all know that people work from home a lot more and that some long-standing customer travel patterns have changed. Even though journey numbers are near, or in some cases have surpassed, pre-pandemic levels the revenue received is only at about 80% of where it was previously, so we continue to face financial pressures.

This makes having a detailed view of whole-industry costs and revenue in one place to help inform effective and joined up decisions more important than ever before.

Tools to serve up that whole picture to decision-makers

GBRTT has been working, since its creation, to build the tools and processes that will help us all better understand the impact of financial decisions across the whole system.

To do this, we’ve built and developed, with partners across the industry, some new tools that visualise industry finances across track and train for the whole network.

The impact of these tools is that rail leaders can see, for the first time, the full picture on costs and revenues, including how they interact with each other across the system. This enables more joined-up financial decisions and means we can better inform funders and stakeholders on how to best invest in rail. It also means we can support a change in culture across industry, developing decision-making skills which better serve our customers – both passengers and freight.

With huge amounts of information on funding and finance to bring together, and the responsibility for managing these different funding streams and cost and revenue lines split across different organisations, this is a mammoth undertaking. So, it’s important to say that we are very much at the beginning of a long, but exciting journey!

In my next blog, I’ll give an insight into how the team has created these new financial tools and how they are already being put into practice.