UK: Spending cuts hit plans for 1,300 new rail carriages

[John Ashworth]

Spending cuts hit £1bn programme for 1,300 new rail carriages

Transport Secretary Philip Hammond demands savings in £5bn rail budget

* Dan Milmo Transport Correspondent
* The Guardian, Friday 4 June 2010

The government stepped up its financial crackdown on the rail industry yesterday after the transport secretary ordered a review of a £1bn programme to buy 1,300 train carriages in the wake of a sceptical National Audit Office report.

The government's spending watchdog raises questions about the institutional backbone of the rail industry by querying the competence of the Department for Transport's procurement procedures, the ability of infrastructure owner Network Rail to meet efficiency targets and the ability of the Office of Rail Regulation to monitor its performance effectively.

Philip Hammond, the transport secretary, has put the rail industry on notice that cost savings are needed in the government's £5bn rail budget and the rolling stock order has been caught in that austerity drive. According to an NAO report, the DfT scheme would have delivered fewer carriages than expected. Last month Hammond announced a pause in carriage orders for 2010-11 as part of Whitehall-wide cutbacks on unnecessary expenditure, but has gone one step further.

"This report makes clear that we need to go further, and on the back of its findings I have ordered an urgent reappraisal of the whole programme," he said. "We will rigorously reassess the business case for each procurement in the light of the changed circumstances … and will ensure that we deliver value for money for taxpayers."

The watchdog said that the DfT had not modelled passenger demand adequately or considered whether delaying the order beyond 2014 would deliver a better deal for taxpayers. However, it admitted that many commuter services suffer from severe overcrowding, despite the recession and its effect on passenger numbers. According to the NAO, in 2008 nearly half of all passengers arrived at London stations between 08:00 and 08:59 on services that were full or overcrowded.

A separate £1.2bn contract for more than 1,000 new carriages on the Thameslink route is also on hold.

Meanwhile, Network Rail said it had made a strong start towards meeting tough savings targets over five years, in the wake of a critical progress report from the ORR. It saw revenue decline by 8% to £5.7bn due to a fall in income from train operators and a lower government grant, the company's two main sources of revenue. As a consequence, operating profits, which are recycled into the business, fell by 4.5% to £1.98bn in the year to 31 March.

The quasi-private company, technically independent but largely funded by government grants and state-underwritten debt, gave no indication that it would reduce executive bonus payments this year, despite a warning from the ORR on Wednesday.

The regulator said that a mixed performance last year, including three rail worker fatalities, should be taken into account when bonuses are announced at the end of this month. However, Network Rail has trumpeted improved punctuality figures, which saw 90% of trains arrive on time, as proof of a good performance.

Iain Coucher, Network Rail's chief executive, said the bonus scheme was necessary to help achieve cost improvements that benefited passengers as well as taxpayers. He said Network Rail was looking at scaling back platform lengthening programmes in the wake of the rolling stock delay, but warned that the move would not save the government significant sums because those schemes are funded by long-term debt. The ORR has calculated that slashing Network Rail's £8bn enhancement programme in half will save the DfT just £400m over the next four years.

Coucher added that cutting services could save money, but Network Rail's day-to-day expenditure, the bulk of its £35bn budget over the next five years, could not be altered: "If you remove trains from rural networks, you still need to maintain the tracks."

In its report this week the regulator raised concerns that Network Rail will struggle to meet an efficiency target of 21% lower costs by 2014, which must be achieved if the company is to remain within its budget. Network Rail said it had made a strong start to meeting the cost-savings benchmark.