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Mind the productivity gap

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First published May 2022, by Inside Track. 

By Neil Robertson, CEO National Skills Academy for Rail and Programme Lead for TIES Living Lab

The Williams-Shapps rail reforms are just over the horizon, promising a simplified, rationalised rail network for the UK that – we are confidently assured – will soon deliver £1.5 billion a year in efficiency savings.

Is that a realistic figure? Is the industry really misspending that much annually? Efficiency in policy proposals sometimes seems like the goose that never quite gets round to laying a golden egg, a magical promise in place of real, hard money. But in the case of rail, I think they are on to something.

Unlike just about every other major industry, rail has been stubbornly resistant to improvements in productivity. But the problem is not evenly spread throughout the industry. On the operations side there have been dramatic improvements. Investment in newer, longer, faster, safer trains for one thing has seen an upsurge in passenger numbers. It is on the infrastructure side where productivity has flatlined, and some comparisons between the two areas of investment might offer an insight into what we can do to fix it.

For all their faults, the rail operator franchises created an environment that encouraged private sector investment because they were long-term and stable with clear targets. But rail infrastructure procurement has been saddled with the sort of short termism that is deadly to both to investor confidence and the willingness to innovate and modernise.

The forward business competence of a rail supplier, on average, is about 15 months, with a return on investment that is typically about three years plus. The only way we are going to improve on that is by creating a policy environment that properly aligns procurement governance with contracting practice to create more competence in the supply chain and more enthusiasm from private investors. Under the right conditions, it is reasonable to assume that investment would double, rising to levels that are normal in other sectors. 

And we have seen those conditions created elsewhere. The UK has developed a world-leading wind power industry from a standing start in 10 years. It was largely done through imaginative procurement and governance arrangements that made wind an extremely attractive investment prospect. Under the government’s Contracts for Difference policy, companies were promised a set price on every megawatt hour produced for fifteen years. It was a long-term bankable promise, immune to changes in administration, that attracted enormous amounts of private investment into what could appear to be a very risky, unproven new technology. With the right policy environment, we can do the same thing in rail.

But infrastructure is only one part of the story. The skill crisis in rail is another area which demands investment that is not only more but smarter. Our suppliers are seeing wage inflation that is higher than anything they have experienced before. They recognize the need to spend more on training and skills but if they can’t retain those skills because of spiralling wage inflation there is a massive disincentive to invest.  

The National Skills Academy for Rail (NSAR) is doing a lot of the work needed to address the problem, but more commitment from industry and government is going to be needed. At NSAR we have collaborated to create new standards and to double the number of rail apprenticeships, but we are still a long way from having enough. Programmes like Routes into Rail, which communicate the overall, long-term benefits of a career in rail – not just pay, conditions and pensions but the opportunity for personal and professional growth and development – are having an impact, as are mandated training clauses in DfT procurement contracts, but we need to reach further. There are reservoirs of potential we are not tapping, those slightly harder to reach youngsters in the more deprived corners of our country, who we haven’t reached out to before. It will require a new way of thinking and different recruitment approaches. But it can be done. 

Of course, there is another dimension to the skills shortage, which is that railways are not standing still. The rail of today is considerably more technologically complex than it was ten years ago and is showing no signs of slowing down. Modern rail staff need new technological awareness and much greater adaptability. Which means training is longer and so more expensive. Multi-skilling staff and better enabling with technology may be part of the solution as it is in many other sectors, but it will require a new willingness to adapt and change, a culture of innovation that may be as challenging to learn as procurement processes are to rationalize. 

Innovation is one of those things that everyone approves of in principle but many find a lot less comfortable in practice.  Risk aversion is very much part of the rail industry DNA and the short termism of procurement practice and contract policy only reinforces the tendency. But a willingness to take risks in the right places will play a significant part in finding the more efficient railway that Williams and Shapps are promising. NSAR is programme lead for TIES Living Lab, a collaboration of 25 partners from industry, academia and government 

funded by InnovateUK through the Transforming Construction Programme with contributions from the Department for Transport, HS2, Transport for London, Network Rail and National Highways, is working to take some of the risk out of innovation with interrelated projects focusing on data tools, digital solutions, and Modern Methods of Construction projects. It is a good example of how a multiplicity of small steps can add up to  big changes, taking a holistic, whole-life view of construction and not neglecting the importance of carbon, biodiversity and social impact.

The government is not far off the mark in aiming for annual savings of £1.5 billion in a more rational national railway. But the easy efficiencies that emerge naturally from system wide ticketing and other low hanging fruit will not be enough. We must also address deeper more fundamental challenges such as the productivity gap caused by the in-built inefficiencies in our supply chain, procurement practices that bake in short term thinking, and wage inflation that will eat up efficiency savings if we don’t take the right steps now. There is no reason why these obstacles shouldn’t be cleared away, as the example of wind power suggests,  but we need to act, and invest, now.

Link to article on Inside Track, click here