In findings published on Thursday, the ORR ruled that Network Rail would have a total budget of £28.5bn for the five years starting in April next year. Of the income, £26.7bn would come from government subsidies, train operators and freight companies, and the rest from other sources such as property rents.

The £26.7bn is only £200m more than ORR outlined in its draft figures in June, which the infrastructure company said was “insufficient”, and £2.4bn less than Network Rail had demanded.

The ORR requires Network Rail to improve the efficiency of its core business – operating, maintaining and renewing the railway – by 21 per cent by March 2014 compared with the present financial year. However, the regulator has postponed some improvements until the end of the five-year period in response to Network Rail’s misgivings.

In return for the funding, Network Rail will have to improve significantly train punctuality and reliability for both passenger and freight trains and undertake £7.74bn of investment in projects to improve the railway’s capacity.

The largest project will be the first phase of the cross-London Thameslink project. The company will spend £2.75bn during the period connecting the route to the London-Glasgow East Coast Main Line near Kings Cross.

Paul Plummer, Network Rail’s director of planning and regulation, said continued high levels of investment in the network were welcome. But the company would have to be sure the targets and investment levies set out by the ORR were both achievable and adequate to meet the growing demands placed on the network.

"We will now take away today's determination and carefully study and consider the implications it will have on both passengers and freight users and on the industry as a whole,” he said.

Bill Emery, ORR’s chief executive, said the ruling provided the funding necessary for Network Rail to meet its targets.

Network Rail has until February to decide whether to accept the findings. It can appeal to the competition commission but looks unlikely to do so because of the delay such a move would cause in settling its funding.

See also:

What a hypocritical way to run Britain's railways

The Independent: 31 October 2008

The Government is still failing to invest on the necessary scale

There is an air of unreality about the demands that the Rail Regulator has laid out for Network Rail over the next five years. The regulator is demanding that Network Rail improve punctuality and deliver major new infrastructure projects. The question that springs to mind on reading this ambitious list is: what will happen if Network Rail fails to deliver? The precedents are not encouraging.

Rail passengers will recall the terrible disruption last New Year, when there were major engineering overruns in Glasgow, Rugby and London. Tens of thousands of travellers were inconvenienced. Network Rail was fined a record £14m by the rail regulator. But because Network Rail is a publicly-owned company, with no private shareholders, the fine was merely picked up by taxpayers, many of whom had suffered from the disruption in the first place.

But this is merely one aspect of the madness of railway economics in Britain. More people are using the railways than at any time since 1945. The result is overcrowding on several major routes. And yet the response of the train operators has not been to put on more trains, but to increase fares. We have an industry that rewards its customers by making their travel experience more miserable and charging them extra for it.

So what is to be done? There are two major problems with Britain's railway system that need to be distinguished. The first is the incompetence of Network Rail and several of the private train operating companies. This is not a funding issue, but a management one. If money is an issue, it lies in the fact that the managers are presently rewarded for failure. Three Network Rail directors received bonuses of £200,000 this year, despite the New Year overruns debacle. The Government needs to look again at those charged with delivering our rail services. Incentive schemes which end up rewarding incompetence must be torn up.

But there is a second, larger, problem and that is the Government's stubborn refusal to invest in the rail network on the scale necessary to deliver an efficient, modern transport system. The stewards of our rail system are often incompetent, but the blame for the often appalling condition of our rail services must be shared with ministers who have been quietly allowing the public subsidy to dwindle.

Unveiling the Government's five-year rail plan last year, the then Transport Secretary, Ruth Kelly, rejected greater electrification of the network and more high-speed rail as "too expensive". The hypocrisy and short-sightedness of this is immense. The Government is pushing ambitious targets for cutting greenhouse emissions through the House of Commons, and yet it is squeezing rail (the greenest form of public transport) and lavishing favours on the airline industry. Ministers are demanding that individuals reduce their carbon footprint, and yet they preside over a transport system in which it is cheaper to fly between London and Glasgow than it is to take the train.

There are signs that this might be changing. The new Transport Secretary, Geoff Hoon, this week promised to review the case for high-speed rail lines. And the Conservatives' endorsement of a new high-speed North-South rail line confirms which way the political wind is blowing.

But the proof will be in the delivery. Passengers, long squeezed between the incompetence of railway managers and the hypocrisy of ministers, will believe in the new strategy when they see it being put into effect.