2 Improving efficiency in the rail
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.
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".
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
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.
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.
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.
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.
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.
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.
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
12 Qq 31 and 55 Back
Q57; C&AG's Report paras 14 and 2.2 Back
Qq 61 and 78-80; C&AG's Report, para 2.11 Back
Qq 46, 56-59 and 82 Back
Qq 60 and 86; C&AG's Report para 2.12 Back
Qq 47-55, 60 and 86 Back
Qq 52, 71-76 and 98; C&AG's Report, Appendix 2 Back
Qq 52 and 91-98 Back
Qq 17-18; Ev 20 Back
Qq 27-28 and 40-41 Back