John Thomas, Director of Policy at the Rail Delivery Group, explains why Network Rail and train operators pay each other if performance is better or worse than expected – and why headlines about profit from disruption aren’t all that they seem…

Everyone working in the rail industry – from colleagues in offices to those at stations and engineers working overnight to the driver of your train - wants everything to run on time. We work together every day to make this happen. Train companies and Network Rail work closely together to plan train services while investing in improved infrastructure, new and refurbished trains, and new technology, to keep disruption as low as possible.

However, like any transport system, there is disruption and we know it’s important to get services back to normal as soon as possible. That’s why rail companies have systems in place for disruption, both planned (such as engineering work, which as far as possible is carried out when the railway is quieter, and so disruption is minimised) and unplanned (such as signalling problems or severe weather).

You can check what compensation you’re entitled to if you’re on a train that is disrupted by visiting the train operator’s website or reading a summary on the National Rail Enquiries website. Train companies have actively increased efforts to make customers aware of compensation arrangements like delay repay leading to an 80% increase on the number of claims made to train companies over two years.

In this blog, I explain about what happens behind the scenes in the industry when there’s disruption – and also, when performance is better than expected.

Encouraging good performance

Network Rail is responsible for maintaining the track, signalling and other infrastructure. The independent regulator, the Office of Road and Rail (ORR), sets a benchmark level of performance for Network Rail that train operators can expect for the access charges they pay. Equally, ORR sets a benchmark level of performance for train operators in relation to things under their control (train faults, staff availability, etc.). This is because delays caused by one operator can impact negatively on the performance of other operators.

When Network Rail’s performance falls below its benchmark level over a set period of time, train operators face more delays and cancellations and therefore cannot run their services as expected. There is strong evidence to suggest that if passengers experience disrupted journeys, they will be less likely to travel by train in the future. If fewer people travel, because they have experienced delayed and cancelled journeys in the past, then income from fares will be lower than expected, which undermines the assumptions train operators make when they bid for a franchise, run an open access service or carry freight on the rail network. In these circumstances, Network Rail will make compensation payments to train operators. Similarly, if a train operator’s performance falls below its benchmark it will make compensation payments to other affected train operators via Network Rail. If Network Rail’s performance is better than expected they will be paid bonus payments by train operators on the basis that more people are likely to travel by train.

One of the principles of the performance regime is that operators are no better or worse off as a result of changes in performance that are outside of their control. This includes changes in the performance of other operators or performance of the network (whether those changes are in the direct control of Network Rail or not).

Why does Network Rail pay compensation for events out of its direct control, for example relating to the weather?

This is consistent with the principle of operators being no better or worse off as a result of changes in performance that are outside of their control. It removes the need for operators to increase costs to passengers, freight users and/or taxpayers to account for the risk of unexpected disruption that they have little or no control over. It also incentivises Network Rail to consider investments or improvements to mitigate the impact of such situations.

In summary, the payments made through the performance regime in track access contracts are designed to reflect reductions in industry revenue when performance gets worse and increases in industry revenue when performance improves. The Office of Road and Rail says that this incentivises Network Rail and operators to keep unplanned disruptions to a minimum and reduces the risk to train companies of operating and investing in the industry, thereby reducing the cost to the taxpayer.

Planned disruption

Schedule 4 compensation accounts for the impact of planned disruption. For example, when trains can’t run because of planned engineering work. Because planned disruption is announced in advance, train operators can take some steps to reduce the compensation required from Network Rail, but compensation is needed to arrange alternative train services or alternative transport and to take into account the impacts on their business, such as fewer customers taking the train.

Given that some planned disruption is inevitable to maintain, renew and enhance the network, it is known in advance that Network Rail will have to pay some compensation and therefore Network Rail is funded for the forecast amount of compensation it will pay. If Network Rail can undertake all its work whilst causing less disruption to train services than forecast, it will pay less compensation than the funding it receives and vice versa.

The future

Preventing disruption to customers is better than having to pay compensation. The two regimes described above are intended to provide a financial incentive for the whole industry to work together to minimise disruption whether planned or unplanned and we are committed to continually improving. However, we recognise that there are always improvements that can be made to facilitate and encourage more effective collaborative working between industry partners to enable improvements in performance. That is why we are working closely with the Government’s Rail Review team, independently chaired by Keith Williams, with the objective of putting forward the industry’s bold proposals for reform that will deliver significant improvements for both today’s and future customers, as well delivering value for money for taxpayers.