1.The Department lacks a convincing and timely plan for encouraging passengers back to the railway as part of COVID-19 recovery, and risks an increase in car use. The Department and Network Rail have some plans to encourage people back to rail travel, including increasing the capacity of services and the information available to passengers. However, these plans do not reflect the urgency required to avoid an increase in car use as people begin to travel again, which would undermine the decarbonisation of transport required to meet net zero commitments. Even before the pandemic, passenger demand had plateaued, reflecting a change in travel patterns. Long-standing barriers to rail travel remain unaddressed by the Department. For example, fare reform to reduce the complexity and cost of rail travel and encourage use is long overdue. In addition, it remains unclear how the Department will better integrate rail travel with other modes of public transport, which would improve utility of the whole public transport network and incentivise use. The Department’s own data shows that people are returning to cars faster than to other modes of transport. Without targeted and timely intervention, the opportunity to reinvigorate use of public transport and prevent a car-led recovery will be missed.
Recommendation: The Department should write to the Committee by December setting out the actions it is taking to encourage passengers back to the railway. This should include:
2.In recent years, we have identified serious failings in the rail system, and the Department must now overcome significant long-standing issues to bring about complex reform. We have previously reported on the problems inherent in the rail system, such as: poor performance and reliability of the network; the lack of accountability and Departmental oversight and the Department’s poor management of franchises. The COVID-19 pandemic has brought additional challenges, not least the collapse in passenger demand and associated revenues, and significant financial cost to government and the taxpayer. The Department acknowledges that the rail system faces a complex and deep-rooted set of issues and that collaboration between all bodies in the system will be required to make changes across the sector. The COVID-19 pandemic has added to the urgency of these reforms. The publication of the much-delayed Rail white paper is the Department’s first step towards much needed reform. Such a large, “once-in-a-generation” reform programme carries significant risks. The implementation and execution of reform will be a complex task relying on multiple actors and organisations. The Department needs to guard against over-optimism in relation to its capacity and ability to deliver this change.
Recommendation: By December, the Department should write to the Committee setting out clear roles and responsibilities between bodies in the rail system for the delivery of reforms, and a timetable for implementing the system-wide reforms proposed in the Rail white paper.
3.Published information from the Department and the Office of Rail and Road on whole-system costs and revenues is not sufficient to inform proper oversight of the rail system, given the extent of taxpayer exposure. The arrangements for delivering rail services in England involve complex financial flows and contractual obligations between a range of private and public sector bodies. The lack of a complete set of public data makes it difficult for Parliament and taxpayers to understand the overall financial position of the system, and the impact of government’s choices. In addition, the taxpayer has borne the brunt of the financial burden of supporting the rail system through the COVID-19 pandemic. Until recovery is more certain, the Department has said that financial risk will remain with government and the taxpayer. Given this, the Department must improve transparency over the costs across the whole industry and use whole-system financial and management information to oversee its financial contributions and ensure value for money. On operator contracts specifically, through its proposed quarterly monitoring, the Department now has an opportunity to develop its reporting to inform its oversight and improve the transparency of decisions made in passenger operations.
Recommendation: The Department should write to the Committee by December setting out its plans to improve transparency. As a minimum these should include:
4.It is not yet clear that the interim National Rail contracts fairly distribute risks between government and operators, or provide incentives for operators to deliver efficient, high-quality, and value-for-money passenger services. In previous reports the Committee highlighted failings in the Department’s previous commercial model of rail franchising. The COVID-19 pandemic brought an end to this approach and transferred all revenue and cost risk from operators to the government through two rounds of emergency measures which overlaid franchise agreements. These arrangements directly expose the taxpayer to operators’ income and expenditure positions and led to significant financial support to operators during 2020–21. The Department is now putting in place interim National Rail contracts as a bridge between emergency measures brought in in response to the COVID-19 pandemic and implementing long-term reforms to service delivery set out in the Rail white paper. It will be vital to put in place contracts which reduce taxpayer risk exposure, alongside providing the necessary resilience, and meaningfully incentivising operators to grow revenue, reduce cost and harness commercial expertise. However, the Department has not set out in sufficient detail the exact nature of these contracts, nor how it will use them to incentivise improved performance. In addition, we are concerned that the majority of cost risk and revenue risk will remain with government under these contracts, leaving the taxpayer exposed to fund a currently unquantified bill. The Department will also require significant resource to manage and oversee these new contracts.
Recommendation: The Department should set out in its Treasury Minute response the high-level terms of the new National Rail contracts, where revenue and cost risk will lie, and how it is using these to incentive improved performance, beyond the planned performance-based management fees.
5.We are disappointed at the lack of progress in agreeing a specific and funded plan for the electrification required to achieve the government’s own net zero targets. Electrification of the network is the key mechanism for delivering rail decarbonisation. It will require a significant level of investment (estimated between £18 billion and £26 billion, 2020 prices) and the Department recognises that a steady long-term plan for electrification is fundamental to achieve net zero commitments efficiently. However, the Department’s track record on rail electrification projects reflects in its own words a “feast or famine” approach, which has directly caused boom and bust problems in the supply chain for the SMEs involved in the delivery of these projects and uncertainty for procurement of rolling stock. We reiterate the Transport Committee’s call for a long-term plan for rail, including a strategy for decarbonisation and electrification. The Department has promised a long-term plan but lacks urgency in its delivery, and its reliance on the delayed all-mode Transport Decarbonisation Plan is unsatisfactory.
Recommendation: In its December letter to the Committee, the Department should set out how it will work with others to deliver the electrification required to meet net zero commitments over the long term, and how it plans to fund a stable programme of investment.
6.It is not clear to us how Network Rail expects to achieve the remaining efficiencies planned in Control Period 6. In Control Period 5 (2014–15 to 2018–19), Network Rail failed to achieve its efficiencies target as agreed with the Office of Rail and Road (ORR). In the first two years of Control Period 6 (2019–20 and 2020–21), Network Rail has made progress and is ahead of its target on efficiencies. A set of indicators developed with the ORR will hopefully improve governance and understanding of the likelihood of efficiencies in Control Period 6 being met. Management data has also improved, and Network Rail better understands differences in efficiencies between its operating regions. However, the scale of the efficiencies challenge is increasing, and Network Rail recognises that there is still a mountain to climb to achieve the £4 billion efficiencies target set for Control Period 6. Network Rail will need to continue to increase savings year on year. However, Network Rail is vague on its plans for efficiencies and seems heavily reliant on achieving remaining efficiency savings in Control Period 6 through infrastructure renewals activities.
Recommendation: Network Rail should write to the Committee by December to set out its efficiencies plan for the remainder of Control Period 6, how exactly it plans to achieve the £3 billion of efficiencies remaining, and how the efficiencies process is governed, monitored and incentivised.