Increasing Passenger Rail Capacity - Public Accounts Committee Contents

2  Improving efficiency in the rail industry

7.  When the Department was asked about relatively high fares in Britain compared to other countries its answer referred exclusively to the dependency of fares on the level of public subsidy, and not to the relative efficiency of rail systems internationally.[12] Rail infrastructure costs more in Great Britain than elsewhere and the Office of Rail Regulation has concluded that there is "a very large potential for Network Rail to improve its efficiency".[13] The Regulator, on the basis of costs from the Netherlands, has concluded that Network Rail could have made savings of 25 per cent in the costs of platform extensions if it had used modular rather than conventional construction methods. In his evidence to the Committee the Regulator agreed that Network Rail has an "expensive approach".[14]

8.  The Regulator is responsible for improving Network Rail's value for money and has been in existence since 1994, yet Network Rail is still less efficient than international comparators. The Regulator's targets for Network Rail require it to increase its efficiency by March 2014 and to close the efficiency gap between it and its European peers by two thirds.[15] The National Audit Office (NAO) found that the Regulator did not have bottom-up evidence of detailed costs of enhancements, their trends over time, or their current levels relative to comparators, when it was assessing the levels of efficiency savings Network Rail could make within its programme of capacity enhancements.[16] In his evidence to the Committee the Regulator was unable to provide broad figures on the financing costs of Network Rail's debt and accepted that the judgements taken on the appropriate allowances for Network Rail's costs are sometimes not fully backed up by all the data.[17]

9.  The railway industry is unique and complex; including Network Rail, the train operating companies, the Regulator and the Department. Complexity necessarily brings increased costs and, particularly in the current financial climate, the Committee would have expected to see concerted efforts to drive down costs, for example in headquarters functions.[18] Levels of executive pay at Network Rail are considerably higher than those in the public sector. The outgoing Chief Executive's salary for 2009-10 had been reported as £613,000 with total remuneration of £1.2 million, with the latter figure confirmed as broadly correct by the Regulator. The Regulator was aware of Network Rail's management incentive plan, and had written to the Chairman of its remuneration committee, to inform him of the performance of the company and assist the committee in its considerations.[19]

10.  In relation to the costs of extra carriages the Department has already contracted for 650 extra carriages. It has not sought to renegotiate these contracts to increase their value for money since it believes the commercial environment has not changed since those contracts were concluded.[20] To meet rising demand, the Department's focus so far has been on increasing the numbers of places on trains by buying carriages and lengthening platforms. It accepts, however, that this cannot go on indefinitely and hopes, in the future, to widen its focus to include managing demand away from the peak by using electronic ticketing.[21]

12   Qq 31 and 55 Back

13   Q57; C&AG's Report paras 14 and 2.2 Back

14   Qq 61 and 78-80; C&AG's Report, para 2.11  Back

15   Qq 46, 56-59 and 82 Back

16   Qq 60 and 86; C&AG's Report para 2.12 Back

17   Qq 47-55, 60 and 86 Back

18   Qq 52, 71-76 and 98; C&AG's Report, Appendix 2 Back

19   Qq 52 and 91-98 Back

20   Qq 17-18; Ev 20  Back

21   Qq 27-28 and 40-41 Back

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Prepared 9 November 2010