Using PESTEL to design effective strategies
A Network Rail case study

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Page 3: Political and Economic forces

Political

Railways have always been a political issue. In the 1960s, as car ownership increased, rail use dwindled and many lines closed. Government money has kept parts of the network operating. Further cuts to services would save money but increase social hardship and affect the environment by putting more cars on the road. Investing more in the railways would deliver social and environmental benefits but at the cost of the taxpayer's money.

Safety is also political. Serious rail crashes at Paddington (1999) and Hatfield (2000) raised concern over proper funding of maintenance and safety. Railtrack was held accountable for the accidents and as a consequence, it faced large costs in the form of penalties and compensation payments. It was against this difficult background that Network Rail was formed in 2002.

Economic

In economic terms, Network Rail receives income from two main sources:

  • the train operating companies who pay for track access
  • the Government that pays fixed amounts as part of a five year plan.

Network Rail operates with the same financial discipline as any large company. The company does not pay dividends but does aim to make a profit. It has normal business pressures to boost income and reduce costs. Profits are used to cut debt and most importantly, to invest in the rail infrastructure.

The following table shows how much Network Rail is putting into investment for 2006:

profits chart

It has a clear instruction from the Department for Transport to improve operating efficiency. Unit costs for example, the cost of replacing one mile of track have been driven down by 22% since 2002. The target is 30%. Journey performance is equally under pressure. Delays are down 28% since 2002 and 86% of passenger trains now run on time. The target is 90%. Network Rail is part of a closely regulated environment and is directly answerable to:

  • its members who scrutinise its performance
  • the Office of the Rail Regulator (ORR) which sets the charges for track access
  • the Department of Transport which decides on the extent and timing of government funding.

The economy is a vital element in Network Rail's environment. Economic growth generates greater demand for rail travel. More jobs mean more commuting. Business expansion means more business travel. Rising incomes mean more leisure journeys by rail. An economic downturn would put all these factors into reverse. Since the mid-1990s the UK economy has enjoyed a long boom with GDP up by 40% over ten years. Network Rail has enjoyed rising revenues from the train operators. However, more passengers and higher ticket sales have stretched operating capacity to the limit. It has invested in major projects to reduce delays, eliminate bottlenecks and raise permitted line speeds. The company works closely with train operators to improve reliability and offer more routes.

Network Rail | Using PESTEL to design effective strategies
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