THE Office of Rail Regulation has revealed that it expects Network Rail to save £2 billion during the five years from 2014, having published its draft determination of the company's budget. The regulator said the budget was 'stretching, but achievable'

The total to be spent will be £37.9 billion, as compared with a reported £37.5 billion in the original Strategic Plan published by Network Rail in January. By the time Network Rail had made its formal submission to the ORR, the proposed total had risen to £40.1 billion. The ORR said this was because the earlier figure had disregarded some income, including property revenue.

The ORR said Network Rail would face 'new tougher regulatory targets', which were intended to not only improve punctuality but also increase safety and the standards of infrastructure management.

Train operators have welcomed the announcement in principle, but rail unions have claimed that safety would be put at risk by the reduction in the budget.

The company's borrowings will rise by about a third, reaching some £40 billion by 2019. This debt is notionally secured against the value of the infrastructure and other assets, and is limited to 75 per cent of that value. The proportion by 2019 will be 68.2 per cent.

Subsidy from governments will total £18 billion.

Today's announcement launches a period of consultation, with the final decision set to be made in November, six months before the start of Control Period 5.

Network Rail will be expected to improve its performance, after being criticised recently, and also carry out a series of major projects costed at £12 billion, including main line electrification.

The assessment shows that over the next five years the day-to-day cost of running the network should be £21.4 billion.

The ORR explained that savings of almost £2 billion will be achieved through the use of new technologies, better management and more efficient ways of working. There is also additional funding to improve the condition of structures. More level crossings will be upgraded or abolished.

However, £7 billion is still subject to final approval, because the projects it will fund are still in their very early stages. The ORR said 'to safeguard taxpayer interests, before releasing funds for these schemes, ORR is requiring Network Rail to provide well-developed plans to ensure they represent real value for money. The regulator also proposes that Network Rail seeks input from train operators, stakeholders, and passengers to demonstrate these plans address the needs of rail users'.

ORR chief executive Richard Price said: "Britain’s railway is a success story and it has made significant progress over the last decade. In order to sustain this progress and retain support and confidence, the industry must continue to improve its efficiency to reduce its dependence on public subsidy.

"Passengers will benefit from increases in capacity through a major programme of enhancements and improvements in punctuality, tackling in particular the worst-performing lines. Not only that, we are proposing that rail users should have more say in what enhancements to the railways are delivered and how."

Network Rail had already warned that it would not comment in detail on the draft determination at this stage, because it will now take several months to prepare a full response.

A company spokesman said: "A decision of this significance, which will be important not only for the railway’s four million daily passengers and freight users, but also the economic prosperity of the country and the future sustainability of the network, needs careful and detailed thought. We will take the time necessary to analyse our regulator's initial findings before giving our formal response in September.

“There is no question that our railway needs to sustain the high levels of investment seen in recent years if we are to continue expanding the railway to provide for the ever growing numbers of passengers and trains."

First reaction from around the industry has been mixed. ATOC chief executive Michael Roberts said train operators would consider today's announcement carefully, and added: “This is an important opportunity to incentivise Network Rail and operators to work more effectively together, allowing the industry to build on current near record levels of customer satisfaction and meet growing passenger demand by providing better trains, more seats and quicker journeys.”

But TSSA general secretary Manual Cortes was critical of the £2 billion budget reduction. He said: "We think the ORR is simply wrong by calling for improved safety while demanding budget cuts at the same time. The former will suffer if the latter happens.

"On this occasion, the men in Whitehall clearly do not know what is best for our industry."