Friends of the Rail Forum

Early report into high costs of UK railways

Page last updated at 13:10 GMT, Monday, 14 June 2010 14:10 UK
BBC

A review into why railways cost more to run in Britain than elsewhere in Europe is to report back early.

A full report is expected next March but Transport Secretary Philip Hammond has asked for transport expert Sir Roy McNulty's initial findings by autumn.

The transport department says Network Rail's renewal and maintenance spending is up to 50% less efficient than some European rivals'.

Infrastructure firm Network Rail says it has reduced costs by £6bn.

Civil engineering costs in the UK are typically up to double those in Europe, according to a study by the department and the Office of Rail Regulation (ORR).

Train operating costs in Britain are above their level in 1996-97, when privatisation was introduced, and income from users has not kept pace.

Meanwhile, franchise systems in countries such as Germany and Sweden have reportedly led to cost reductions of between 20% and 40%, it found.

Former Transport Secretary Lord Adonis announced the independent review into rail value for money last December. It will report fully in March 2011.

In requesting an interim report this autumn, Mr Hammond said the review would help to create "an efficient and modern railway".

"Passengers and taxpayers will rightly ask why it is that our railways in the UK are so much more expensive than those in the rest of Europe," he said.

"Given the very significant financial constraints that we face, it is essential that we drive out inefficiencies and reduce costs... to protect train services and avoid very high rises in train fares."

Sir Roy said it would not be easy to find solutions to the "significant challenges" Britain's railways faced.

Network Rail is funded largely by the government to maintain track and signalling systems but does not pay dividends.

A spokesman for the firm said it welcomed the review.

"This is a journey on which Network Rail has already made good progress with over £6bn, or 27%, cut from the cost of running the rail network over the past five years and a further 24% targeted by 2014," he added.

Railway industry to be told to put the brakes on its 'unsustainable' costs

• Railways report will warn £5bn annual funding could be at risk
• Government committed to cutting costs rather than rail services

* Dan Milmo, transport correspondent
* guardian.co.uk, Sunday 13 June 2010 16.04 BST

The rail industry will be told it needs radical changes to its "unsustainable" cost structure when the government publishes the terms of an in-depth study into the sector's strained finances this week.

The former chairman of the Civil Aviation Authority, Sir Roy McNulty, is leading a review of the rail industry's costs and is expected to outline the structure of the report this week. A draft version of the outline statement warned government funding of £5bn a year could be untenable. "There is a view that the present costs of the industry are unsustainable," said the document.

The McNulty study is expected to analyse eight areas: overall strategy, the industry's leadership structure, incentives, fares, asset management, supply chain management, innovation and safety, and people.

It is understood the outline statement highlights an Office of Rail Regulation study which shows Network Rail, the owner of Britain's tracks and stations, is 30% more expensive than its counterparts in France and Germany. However, McNulty said: "Improving Network Rail efficiency on its own will not address the challenges facing the industry."

Network Rail said the company, which receives about £4bn per year in state funding, was already committed to cutting its cost base by nearly one quarter over the next five years. It said: "We will be heavily involved in working with Sir Roy and the industry to identify other areas of efficiency."

This month, train operators raised the taboo subjects of fewer and shorter trains, as well as higher-than-expected fare increases, in a meeting with transport secretary, Philip Hammond, to discuss industry funding. However, Hammond is believed to favour tackling Network Rail's costs rather than taking carriages out of service.

The Association of Train Operating Companies said the review will give franchise owners an opportunity to take a bigger role in the industry. It added: "The view of train companies is that freeing them up to bring more commercial nous into the railways has the potential to save hundreds of millions of pounds every year."

Passengers spend around £6bn on services – 75% higher than in 1997. However, the government's financial concerns are also causing frustration among train operators bidding for the East Anglia and c2c franchises – two of the most lucrative commuter contracts in the country. Bidders have spent an estimated £1m each on their bids but, according to one industry source, the process has stalled and franchise owners are being forced to retain expensive but idle bidding teams.

The source said it was a waste of money to delay the process while considering reforms to the franchise model: "In the short term, there are cost efficiencies to be gained in carriage procurement, station management and revenue growth. There is more gain in that than delaying the competition so that the franchise system can be completely reformed to incorporate all the changes that the Tories want."

The National Audit Office issued a guarded warning over the state of the rail industry this month when it published a report that raises questions about the institutional backbone of the rail industry. In an investigation into a government rolling stock order, it queried the competence of the Department for Transport's procurement procedures, the ability of Network Rail to meet efficiency targets and the ability of the Office of Rail Regulation to monitor its performance effectively.

Some rail industry figures, including Network Rail executives, are concerned that reopening Network Rail's five-year plan in an interim review will distract management from achieving the cost-cutting targets and force the government to increase its funding.