Impact of Government Budget Changes

[LNW-GW Joint]

On top of having a new ministerial team at the Department of Transport, we now have a sudden change in spending policy after the change of Chancellor and reversal of taxation plans.
We are promised more detail on spending policy in the October 31 budget statement, but all departments have been told to find more efficiencies - Jeremy Hunt apparently needs £40 billion.
Part of the problem is the increase in government costs due to both general inflation and increased interest rates on government borrowing.
The idea of the last decade that the government can borrow "for free" is now dead, and in any case borrowing is already maxed out after Covid/Ukraine.

We know the railway is already struggling to meet the government's funding demands after Covid, with calls for cost reduction.
The recent changes means that further belt-tightening will be required to meet the new demands.
At the very best, I suspect the railway will have to live within its current cash budget despite the increased inflationary cost (ie it will be a spending cut in real terms).
Additional cost reductions may be demanded, and we know how hard that is to achieve in any short time frame.
There is also likely to be a cap on public sector wages, so the current industrial disputes are not likely to go away - indeed they might worsen.

Enhancements will be under the microscope and it's likely some projects will be deferred, descoped or canned.
HS2 cannot possibly live within its funding envelope in the new regime, it will need at least £10 billion more to reach Crewe.
But I suspect HS2 to Crewe and E-W Oxford-Bedford will be exempt (being well under way), also MML* and TRU* wiring.
However I think HS2 beyond Crewe, together with NPR, will be put back into a review status - maybe the Crewe-Manchester leg will escape, maybe not.
NPR will continue to generate a lot of hot air, but it won't mean much in practical railway terms until someone comes up with a viable route.

This is all speculation until Jeremy Hunt makes his next budget statement, but I am surprised there is not a debate on these issues as they really could affect the railway in a big way.
There's also the issue of whether all this has overtaken the intention to reorganise the railway with GBR.
It's likely that precious parliamentary time will now be focussed on the budgetary issues rather than railway organisation.
The HS2 Crewe-Manchester Bill is in there somewhere too.

(* MML = Midland Main Line, TRU = Transpennine Route Upgrade).

 

[zwk500]

My sense is that HS2 to Manchester will escape the most serious cuts. TRU will also probably keep the majority of it's parts. EWR between Bedford and Bletchley will probably get some upgrade but not the full bells and whistles, Between Bedford and Cambridge I wouldn't be surprised if it died completely. MML Wiring might get through to Derby and Nottingham, but is also at serious threat of going no further than already in progress (just south of Leicester).

Day-to-day funding will be the bigger issue - I agree with your prediction that any increase in funding (which may not even happen) will be below inflation. I would not be surprised if timetables were thinned due to this, although I don't expect routes to close outright.

 

[Magdalia]

Day-to-day funding will be the bigger issue - I agree with your prediction that any increase in funding (which may not even happen) will be below inflation. I would not be surprised if timetables were thinned due to this, although I don't expect routes to close outright.

We know the railway is already struggling to meet the government's funding demands after Covid, with calls for cost reduction.
The recent changes means that further belt-tightening will be required to meet the new demands.
At the very best, I suspect the railway will have to live within its current cash budget despite the increased inflationary cost (ie it will be a spending cut in real terms).
Additional cost reductions may be demanded, and we know how hard that is to achieve in any short time frame.
There is also likely to be a cap on public sector wages, so the current industrial disputes are not likely to go away - indeed they might worsen.

I agree with these, carrying fresh air around will be impossible to justify so timetable cuts are inevitable. And it looks like the fog has closed in again on the landing area for resolution of the current industrial relations issues.

Between Bedford and Cambridge I wouldn't be surprised if it died completely.

The EWR eastern end is nowhere near dead yet.

I listened very carefully to the new Chancellor responding to questions after his Commons statement yesterday, especially those from his own side of the House.

The government still regards the growth agenda as high priority. The Chancellor mentioned the contribution of tech and life science industries more than once, including the contributions of our top universities. Given the current chancellor's background, he is probably more attuned to the needs of the tech and life science industries than any of his three recent predecessors, all of whom looked at growth from the City of London finance end of the telescope. This chancellor is very likely to be in post until the next General Election, whenever that may be, and whoever is Prime Minister. I'm optimistic that he will see the EWR eastern end as essential for delivering economic growth in tech and life science industries. While some capital projects may be deferred, I'd be surprised if EWR was one of them.

 

[swt_passenger]

Enhancements will be under the microscope and it's likely some projects will be deferred, descoped or canned.
HS2 cannot possibly live within its funding envelope in the new regime, it will need at least £10 billion more to reach Crewe.
But I suspect HS2 to Crewe and E-W Oxford-Bedford will be exempt (being well under way), also MML and TRU wiring.

Although the EWR Bletchley to Bedford section is not well under way at all, and it appears to have already been postponed indefinitely, as discussed in the various existing threads.

 

[Magdalia]

There's also the issue of whether all this has overtaken the intention to reorganise the railway with GBR.
It's likely that precious parliamentary time will now be focussed on the budgetary issues rather than railway organisation.

That didn't stop Lansley's NHS reorganisation in austerity season 1.

 

[zwk500]

I listened very carefully to the new Chancellor responding to questions after his Commons statement yesterday, especially those from his own side of the House.

I've listened carefully to a number of politicians for many years, and come to the conclusion that any words coming out of a politician's mouth are worthless unless paper is signed or votes are recorded.

The government still regards the growth agenda as high priority. The Chancellor mentioned the contribution of tech and life science industries more than once, including the contributions of our top universities. Given the current chancellor's background, he is probably more attuned to the needs of the tech and life science industries than any of his three recent predecessors, all of whom looked at growth from the City of London finance end of the telescope. This chancellor is very likely to be in post until the next General Election, whenever that may be, and whoever is Prime Minister. I'm optimistic that he will see the EWR eastern end as essential for delivering economic growth in tech and life science industries. While some capital projects may be deferred, I'd be surprised if EWR was one of them.

BIB - if the Chancellor is looking for Tech and science industries, then digital infrastructure will be far more important than transport infrastructure. 6G mobile data and Fibre To The Property broadband will be more beneficial to these industries than Bedford-Cambridge Rail line. There's half a chance that we could see Cambridge-Cambourne open with provision for later extension, although if that happened It'd be more likely to open as a busway than a railway.

 

[A0]

MEWR between Bedford and Bletchley will probably get some upgrade but not the full bells and whistles, Between Bedford and Cambridge I wouldn't be surprised if it died completely.

If Bedford - Cambridge doesn't happen, why would Bedford Bletchley need upgrading?

The focus on the services would be MK - Oxford, which is fine. There isn't demand to uplift the Marston Vale beyond an hourly service - and the bulk of the changes needed to it are eliminating level crossings a couple of which are going to be costly, difficult or unpopular - see Fenny Stratford, Bow Brickhill, Woburn Sands and Apsley Guise.

 

[Magdalia]

There's half a chance that we could see Cambridge-Cambourne open with provision for later extension, although if that happened It'd be more likely to open as a busway than a railway.

For commuting into Cambridge, St Neots will be more important than Cambourne. I think you are right that Cambourne will get a railway or a busway, but not both. The place that will get a busway of some sorts is Haverhill.

I've listened carefully to a number of politicians for many years, and come to the conclusion that any words coming out of a politician's mouth are worthless unless paper is signed or votes are recorded.

That's why this is currently a speculative discussion!

 

[Mikey C]

The easiest way to save money in the sort term is to delay or slow down major projects, rather than cancelling them...

 

[Trainbike46]

The easiest way to save money in the sort term is to delay or slow down major projects, rather than cancelling them...

all that achieves is that the money is spent later, rather than not at all, though?

 

[zwk500]

all that achieves is that the money is spent later, rather than not at all, though?

But it saves the contemporary government money. It's all about Optics, not results.

 

[Mikey C]

But it saves the contemporary government money. It's all about Optics, not results.

Exactly

If you have a deficit of £10bn to close in 2023/24, then you need short term cuts of £10bn, even if that means you spend the money in 2025/26 instead.

In reality, most HS2 spending is well in the future, OR committed to already, so unlikely to be much help.

 

[Ken H]

They will cut revenue support. Cutting capital spend is harder.
They will be looking to TOCs to cut mileage and other operating spend.
The whole setup of control periods was to stop government cuting capital spend. I think we will see how effecting the safeguards are.
Of course if rail cant be cut enough then other modes will get clobbered instead. Ban news for buses and ferries and even roads.

 

[snowball]

all that achieves is that the money is spent later, rather than not at all, though?

Not necessarily. If project A is put off from year 1 to year 2, then when the time comes to budget for year 2, it will probably happen that project A will take the place of some other project B, which will be put off to year 3, and so on.

 

[zwk500]

If Bedford - Cambridge doesn't happen, why would Bedford Bletchley need upgrading?

The focus on the services would be MK - Oxford, which is fine. There isn't demand to uplift the Marston Vale beyond an hourly service - and the bulk of the changes needed to it are eliminating level crossings a couple of which are going to be costly, difficult or unpopular - see Fenny Stratford, Bow Brickhill, Woburn Sands and Apsley Guise.

Because the Level Crossings are a substantial performance and safety risk, and Oxford-Bedford would still be a useful service given the proposed amount of housing in the area.
The upgrades may well be simply to get rid of the Single line at Fenny Stratford (the Bedford end may survive as 1tph Bedford-Bletchley and 1tph Bedford-Oxford would likely fit relatively easily), together with a couple of Level Crossing upgrades/replacements due to failure rates. I certainly won't be expecting station closures/relocations as was proposed in the more extreme options.

 

[LNW-GW Joint]

They will cut revenue support. Cutting capital spend is harder.
They will be looking to TOCs to cut mileage and other operating spend.
The whole setup of control periods was to stop government cuting capital spend. I think we will see how effecting the safeguards are.
Of course if rail cant be cut enough then other modes will get clobbered instead. Ban news for buses and ferries and even roads.

Control Periods only really apply these days to Network Rail's day to day operation though, and exclude significant enhancements.

The recent IRP (Integrated Rail Plan) promised £96 billion of enhancements (a mix of HS2, TRU, NPR and other projects), and was part of the last (Sunak) government Spending Review covering the rest of this parliament and beyond.
Jeremy Hunt has signalled that those commitments are under review.

 

[zwk500]

They will cut revenue support. Cutting capital spend is harder.

Not really. Drop anything not already in a contract.

They will be looking to TOCs to cut mileage and other operating spend.

It'll need to be substantial operating cuts to make a real differnce (e.g. lines dropping from 2tph to 1tph or similar)

The whole setup of control periods was to stop government cuting capital spend. I think we will see how effecting the safeguards are.

Weren't CP's set up purely for maintenance/rolling programmes, hence why capital projects have always had to justify the spend independently.

Of course if rail cant be cut enough then other modes will get clobbered instead. Ban news for buses and ferries and even roads.

Buses are Largely controlled by Local Government so won't be cut directly (although LG will get absolutely battered). How much Westminster subsidy do ferries get? Rail will see the burden placed on fares where possible. It will be hard for a few years.

The recent IRP (Integrated Rail Plan) promised £96 billion of enhancements (a mix of HS2, TRU, NPR and other projects), and was part of the last (Sunak) government Spending Review covering the rest of this parliament and beyond.
Jeremy Hunt has signalled that those commitments are under review.

BIB - I take this to mean basically they're working out how far along every project is, and anything that's not beyond the point of no return financially will be kicked as far down the road as they can manage.

 

[NoRoute]

Given that the HS2 budget is out of control and the original assumptions which underpinned the project have been substantially changed by COVID and the shift to home working, logically you'd re-appraise the project, take the arguments used for HS2 and re-apply them in today's situation.

Capacity isn't a problem currently and phase 1 with the tie in to the WCML at Lichfield will relieve the southern part of the WCML. Better to stop at phase 1, put all further development in deep freeze until the railway's financial situation and passenger numbers improve.

 

[swt_passenger]

Because the Level Crossings are a substantial performance and safety risk, and Oxford-Bedford would still be a useful service given the proposed amount of housing in the area.
The upgrades may well be simply to get rid of the Single line at Fenny Stratford (the Bedford end may survive as 1tph Bedford-Bletchley and 1tph Bedford-Oxford would likely fit relatively easily), together with a couple of Level Crossing upgrades/replacements due to failure rates. I certainly won't be expecting station closures/relocations as was proposed in the more extreme options.

The TWA order as agreed and announced already allowed for the improved service as far as Bedford, without needing any redoubling at Fenny Stratford. That redoubling has never been proposed.

 

[ScottGallagher]

Given that the HS2 budget is out of control and the original assumptions which underpinned the project have been substantially changed by COVID and the shift to home working, logically you'd re-appraise the project, take the arguments used for HS2 and re-apply them in today's situation.

Capacity isn't a problem currently and phase 1 with the tie in to the WCML at Lichfield will relieve the southern part of the WCML. Better to stop at phase 1, put all further development in deep freeze until the railway's financial situation and passenger numbers improve.

Have any contracts been signed beyond phase 1 yet ? if not i suspect your prediction will be quite likely !!

 

[Bald Rick]

At the very best, I suspect the railway will have to live within its current cash budget despite the increased inflationary cost (ie it will be a spending cut in real terms).

The budget for the next financial year was rather smaller for this year, and assumed many cost efficiencies were implemented. It was a real cash reduction, even before inflation. Personally I’m expecting a further cash reduction, and no inflationary uplift.

I would not be surprised if timetables were thinned due to this,

That’s a racing certainty.

although I don't expect routes to close outright.

I do. Not certain, but very, very likely.

Weren't CP's set up purely for maintenance/rolling programmes, hence why capital projects have always had to justify the spend independently.

no, Control Periods were set up for all NR (and previously Railtrack) expenditure. It was only after the reclassification of NR debt onto the public books, and the Hendy review of enhancement projects in 2015, that enhancement projects (and not capital renewals) were independently authorised.

Have any contracts been signed beyond phase 1 yet ?

Yes, lots.

 

[Xenophon PCDGS]

It is often said that when push comes to shove, that will be the time when departments are found to be where they are in the pecking order for financial backing and Transport is not one of the top-rated ones.

 

[Mikey C]

Given that the HS2 budget is out of control and the original assumptions which underpinned the project have been substantially changed by COVID and the shift to home working, logically you'd re-appraise the project, take the arguments used for HS2 and re-apply them in today's situation.

Capacity isn't a problem currently and phase 1 with the tie in to the WCML at Lichfield will relieve the southern part of the WCML. Better to stop at phase 1, put all further development in deep freeze until the railway's financial situation and passenger numbers improve.

Politically it would look pretty terrible for all the Red Wall Northern seats the Tories are defending, if they are seen to cancel all of HS2 north of the Midlands though...

 

[yorksrob]

Politically it would look pretty terrible for all the Red Wall Northern seats the Tories are defending, if they are seen to cancel all of HS2 north of the Midlands though...

It would look far worse if they start cutting back local routes and services.

 

[JonathanH]

It would look far worse if they start cutting back local routes and services.

It is just as likely to be in the South of England as the North though.

If what 'Bald Rick' says is true about cutting routes, I could see routes like Redhill to Tonbridge or Purley to Tattenham Corner going down to once an hour peak only, and passengers being told that the remaining services were being provided on a 'use it or lose it' basis.

 

[Bletchleyite]

They will cut revenue support. Cutting capital spend is harder.
They will be looking to TOCs to cut mileage and other operating spend.
The whole setup of control periods was to stop government cuting capital spend. I think we will see how effecting the safeguards are.
Of course if rail cant be cut enough then other modes will get clobbered instead. Ban news for buses and ferries and even roads.

Likely the block grant to Councils will be cut further, meaning an issue for buses. Are any ferries serving England subsidised?

== Doublepost prevention - post automatically merged: 18 Oct 2022 ==

I do. Not certain, but very, very likely.

Which ones? All the main "basket case" routes aren't in England so aren't in Westminster's jurisdiction.

Don't say the S&C - too political as everyone has heard of it.

Is there any other route in England where there would be substantial savings? Won't be the Marston Vale due to EWR. St Albans? Wouldn't save a huge amount. Anything in PTE areas again too political. Doesn't leave a lot of options other than Whitby (too political - school traffic), Morecambe (wouldn't save much as the infrastructure is needed for nuclear trains) and Bentham?

Would be absolutely astonished at something like Caterham/Tattenham Corner closing, or anything else in the London commuter area. Perhaps some palming off to TfL?

More likely is frequency cuts, and there are plenty of obvious candidates, e.g. (one random example) go back down to one unit on Ormskirk-Preston.

 

[JonathanH]

The other implication of budget cuts is almost certainly the previously announced plan to keep fare rises below the rate of inflation. Given there won't be money to support this, I imagine that we may see the full RPI+1% increase applied to regulated fares, and perhaps more for unregulated ones, particularly those which are priced below the regulated fares.

 

[Ken H]

If government spend gets cut in UK then the barnet formula will mean a cut in money sent to the devolved governments. So cuts in devolved areas too.
But you can make cuts with low impact. East coast cut their services to Bradford FS, Skipton & Harrogate. Maybe Hull too. Less to Aberdeen unless the Scottish government cough up.
Northern cut some leeds - Morecambe/Carlisle services back to skipton.
In winter the Windermere branch is a 2 car shuttle. Maybe Barrow too.
Sad but maybe necessary.

 

[stuu]

Given that the HS2 budget is out of control

What are you basing this statement on?

 

[JonathanH]

What are you basing this statement on?

Probably this
https://www.ft.com/content/b804b37c-52c2-41b7-801a-eece63de2bb3

First phase of HS2 set to bust budget by ‘many billions’ of pounds

Treasury seeks more savings on high-speed rail project less than a year after eastern leg to Leeds was scrapped

Realistically, it is such a big project and cost to the Treasury that it will be in their sights for budget savings, not least if they see further costs arising.