Increasing Passenger Rail Capacity - Public Accounts Committee Contents

3  Governance in the rail industry

11.  Network Rail does not pay dividends to shareholders. It is a company which has 100 members at present including the Department and 26 'industry members'. The industry members are drawn from Network Rail's trading partners, principally the train operating companies. The other company members are members of the public.[22] The Government indemnifies Network Rail's debts which reduces the pressure from lenders on it to increase efficiency.[23] Network Rail is also the monopoly provider of railway infrastructure in Great Britain.[24]

12.  The Regulator told us that having a single infrastructure provider presents regulatory difficulties, in particular that international benchmarking is needed to challenge Network Rail's costs.[25] The Department and the Regulator are currently co-sponsoring a study to look at the reasons why it is, within the complex arrangements existing in Great Britain, that railways elsewhere in Europe can do a similar job at substantially lower cost.[26] In evidence the Permanent Secretary said that he was not sure whether those parties currently comprising the British railway network are optimally organised or whether their incentives are aligned.[27]

13.  Network Rail has a unique structure and position within the rail industry. It provides the plans on which the Regulator bases his determination of what infrastructure works Network Rail should carry out and at what cost.[28] Network Rail receives a subsidy from the Department (£15.3 billion for the five years to March 2014) and the Department indemnifies Network Rail's debts, yet its accounts are not audited by the Comptroller and Auditor General and he does not have authority to conduct value for money examinations of Network Rail.[29]

14.  In his evidence to the Committee the Permanent Secretary queried the Comptroller and Auditor General's finding that the Department's expectation that it would spend close to the £1.2 billion originally allowed for support to train operators, while planned capacity increases fell short of those originally envisaged, represented a risk to value for money. The Permanent Secretary told us that the planned capacity figures cited in the report were predicated on expenditure of only £900 million. Spending the remaining £300 million in line with the Department's expectation would have given further extra capacity above the levels cited in the report.[30]

15.  The Accounting Officer was unable to tell us why he had not clarified this matter with the NAO prior to publication on the 2 June 2010 or why the matter had not been raised with the NAO until the week before the Committee hearing. Having failed to scrutinise the draft report adequately at the appropriate time and raised the matter so late, it was not feasible for the NAO to investigate the Department's new assertions prior to the hearing.[31]

22   Qq 64-70 and 96-97 Back

23   C&AG's Report, paras 2.13-2.14 Back

24   Qq 40-41 Back

25   Q 41 Back

26   Qq 71 and 88 Back

27   Q 104 Back

28   C&AG's Report, para 2.1 Back

29   Qq 31, 70, 81, 87-88, 91-92, 98-103 and 108 Back

30   Qq 2-7 and 15 Back

31   Qq 8-10 Back

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Prepared 9 November 2010