Greater Devolution - but Shaw Avoids Major Upheaval 

Published as the Chancellor completed delivery of his 2016 budget speech, the Shaw Review addressed questions of funding and organisational arrangements at Network Rail (disclaimer: Steer Davies Gleave acted as advisers to the Shaw Report Team).

It will be seen as the report that didn't privatise Network Rail – an issue made critical by its re-classification on September 2014 onto the government books.

To many observers, the unwritten purpose of the review was to find a path to re-privatisation, given the £40bn+ hit on the Government's debt account. And they couldn't have found a more suitable author, given that Nicola Shaw had spent time at the Strategic Rail Authority in 2002 carefully crafting the structure that would allow Network Rail to be classified as private sector, raising its money on the markets, albeit with a very substantial level of Government guarantee.

This question is, of course, intensely political. Maybe it's just a matter of timing. Because the Shaw Report does outline a clear path to introduce private funding to the increasingly devolved organisational arrangement Network Rail is pursuing. The approach would be to concession (or license) the enhancement, operations, maintenance and renewal of rail infrastructure routes over 20-30 year periods. HM Treasury could be very keen to progress this approach in due course since it could help greatly to reach wider Government debt targets. The Shaw report even helpfully sets out the criteria that would have to be met for a successful ONS re-classification.

Meanwhile, the Shaw review leaves plenty of guidance on other changes needed now – and sees a 3-4 year timescale as being needed to implement them. Everyone, it seems, is well aware of the risk of major upheaval. The railway after all, is essentially a success story – in terms of market growth, safety and even value for money (according to European benchmarks). Change has to be handled carefully.

And there are some key changes ahead. There is much needed clarity on who Network Rail should regard as its customers, and it's not (as it sometimes looks) the Regulator and it's not DfT. Important this, since Network Rail's own research shows that only 19% of its respondents describe the organisation as being 'customer-driven'. Its customers are passengers and freight users, to be represented by the train and freight operating customers to which Network Rail needs to respond.

What will be seen as a central recommendation is greater devolution of responsibility and control within the organisation, to what are called (slightly awkwardly) 'routes'. And here there are two very critical changes to what Network Rail was already planning. The first ties in closely to the wider devolution happening nationally. Shaw wants a new northern 'route', cutting off the West and East Coast routes so these link London with the West and East Midlands and no further. If Transport for the North is going to succeed with its complex polycentric economic geography, it is rightly judged it needs a congruent Network Rail team to work with.

The second is that a freight 'route' has to be created to look after the interests of the freight community across the whole network. The measure of this resolve is that this non-spatially specified 'route' will also have its own chief executive, just like the nine geographical 'routes'.

The Shaw report gets some way into tackling the sometimes fraught interface between DfT and Network Rail. It shies away from saying that DfT should be less hands-on, although one senses this is the intended direction of travel because it is required to produce an overall 30-year strategy for the rail sector. No longer would it be right for a central Network Rail team to initiate the industry's planning process and set overall priorities. But here the report falters: DfT, Network Rail, the Rail Delivery Group et al are told to confer on who takes this role. The new chief executive at RDG, Paul Plummer, of course, led the planning role in his previous job at Network Rail, so watch this space.

But what is very clear is that the regulator (ORR) has to be and remain independent – a challenge all the greater given the multiple roles of DfT as proto-owner and main funder of the infrastructure provider. Indeed, ORR (although there is no mention of this) will surely need extra resources to actively regulate the devolved routes, which under the new arrangements is a clear concomitant to make it all workable.