Payments for planned disruption on the railway

We work hard with train operators to run a punctual and reliable train service for passengers.

To ensure that this happens, we need to continually maintain, renew and enhance the rail network. We aim to undertake this work in the most efficient way possible, whilst minimising disruption to passengers.

However, there are times when train services must be cancelled or redirected to allow this work to take place. When this happens, we take “possession” of the network, and make payments to train operators to reflect the financial impact on their businesses.

Why do we have a possessions regime?

The majority of passenger train services in Great Britain are operated through contracts between train operating companies and the government. These contracts are managed by the Department for Transport (DfT) in England and Wales, and by Transport Scotland in Scotland. Some passenger operators are privately owned and operated (open access operators), and others owned by different funders (e.g. Welsh Government, Local Authorities).

A significant risk faced by operators (and ultimately funders) is being unable to run as many services as what was originally assumed when the contract was agreed. More often than not, this is likely due to Network Rail taking possession of the network in order to carry out essential maintenance and renewals. This work ensures that critical infrastructure is effectively maintained to ensure a safe and efficient railway network. However, this does result in some services being cancelled or disrupted in advance of the day of planned operation, resulting in a direct loss of ticket sales which directly impact train operator revenues.

Industry evidence also suggests that when passengers have experienced disrupted journeys, they are less inclined to travel by train in the future. If fewer passengers travel, because they have experienced some form of disruption in the past, then fare revenues in the future are likely to be lower than what was expected at the time of agreeing the contract. This undermines the financial assumptions made between the operator and the funder and incorporates an additional level of risk which was arguably not considered at the time of agreeing the contract. To protect operators / funders from these risks, and to obtain maximum value for money, this risk is mitigated through an automated payments system, aiming to ensure train operators (and ultimately funders) are left financially neutral when their trains are not able to run as intended. This is the basis of the current possessions compensation regime within the rail industry, commonly known as the ‘Schedule 4’ regime.

Schedule 4 pays train operators for the financial impact of planned service disruption where operators are given restricted access to the network. Principally as a result of our undertaking engineering work. The payments are calculated to reflect the revenue loss from reduced ticket sales and additional costs incurred by train operators, such as for running replacement buses.

How are the payments calculated?

Schedule 4 payments are made to train operators at the end of each four-week period. These payments are typically determined automatically by reference to the formulae in each operator’s track access contract with Network Rail. Payments cover both the revenue and cost components of the losses (i.e. from future lost ticket sales, or additional costs experienced due to the possession taking place). Revenue loss varies by each operator and by the type of service that is run, and therefore the Schedule 4 revenue payments also vary on this basis.

The payments made also depend on the amount of notice given by Network Rail to the operator regarding upcoming possessions. The more notice given, the less Schedule 4 Network Rail is required to pay out. When additional notice is provided to operators, and therefore their passengers, this allows passengers to make alternative travel plans on the day that the possession is scheduled to take place. Theoretically, this should result in fewer passengers being disrupted, and therefore a reduction in the amount of long-term revenue loss experienced by the operator.

There are circumstances when either Network Rail or the train operator may feel that the automated Schedule 4 payment is not appropriate (i.e. the train operator may feel they have not been compensated enough, or Network Rail feel they have overcompensated the operator). In these circumstances, if the thresholds stipulated in the operators track access contracts are triggered, e.g. for long duration possessions, either party can choose to open a claim. The parties will then enter negotiations, where any claims will need to be substantiated with sufficient evidence in order to come to an agreed payment amount.

How are the payments funded?

Passenger Operators:

Not all train operators receive the formulaic payments described above. Passenger train operators must pay an ‘Access Charge Supplement’ to us to receive the full spectrum of compensation payments for possessions. The Access Charge Supplement is set at a specific level. It means we’ll recover the costs of us providing these payments for an amount of work that is deemed to be efficient to maintain the railway. It can be thought of as an ‘insurance premium’ payable in exchange for financial protection from not being able to run trains. Publicly contracted operators must pay the Access Charge Supplement and receive Schedule 4 payments. However, open access operators which do not choose to pay the Access Charge Supplement are eligible to receive limited Schedule 4 compensation for the most disruptive possessions.

Freight & Charter Operators:

Freight operators also receive payments through their Schedule 4 regime. The freight payment rates are the same across all operators and network locations. This removes the potential for freight operators having a competitive advantage over each other through the Schedule 4 regime. We receive separate funding, through our Net Revenue Requirement. This is to provide freight train operators with payments for possessions.

Charter operators do not have a Schedule 4 regime. This is because engineering possession plans are typically agreed before the majority of charter services are planned.