Bad news for the railways

November 10, 2010 3:46 PM

The Public Accounts Committee (PAC) released a new report yesterday about increasing passenger rail capacity. And the conclusions are not very pretty.

The PAC is reporting on the progress of the Department for Transport’s (DfT) five-year, £9 billion investment programme to improve rail travel, in particular by increasing the number of passenger places on trains by March 2014. They are currently 18 months into the programme.

Here is a paragraph from the summary:


"The Department's latest plans show that all the relevant targets will be missed. There will be 15% fewer extra places delivered in London in the morning peak and 33% fewer into other major cities, compared to the numbers the Department stated would be needed just to hold overcrowding at current levels. Despite the impact of the present economic downturn on journey numbers, we are concerned that the failure to meet the targets set will lead to substantial increases in already unacceptable overcrowding levels by 2014 and beyond. Rising demand for rail travel combined with serious cuts in public expenditure make it imperative that the rail industry becomes more efficient, otherwise the passenger will suffer. The Department told us that levels of crowding, and ticket prices, depend on policy decisions about the level of government subsidy. We are strongly of the opinion that this view is misguided as it ignores the scope for efficiency savings to release resources for front line services. The industry's ability to provide a good quality rail service, including acceptable levels of crowding, depends crucially on the efficiency of all players in the rail industry, and of Network Rail in particular."

So whose fault is it that the five year plan is already missing its target? Well, it’s very complicated and the complexity involved in trying to work out how the rail industry actually works may be the problem. As is stated in the report:

“The unique and complex structure of the rail industry makes it inherently cumbersome and expensive, and provides little external challenge to its vested interest in its own growth.”

It would appear the DfT – who are responsible for ensuring extra space on trains from train operators – are not looking to drive down costs, arguing the fate of the rail system depends upon how much taxpayers’ money they receive. This shows that the department rely too much on inputs rather than real reform that would not require train operators to expand their fleets or substantially redevelop stations to avoid excessive overcrowding. To get extra places on trains the taxpayer has to bear much of the train operators' costs as well as providing funds to Network Rail for it to build longer platforms.

Thankfully, the PAC is sceptical that throwing yet more taxpayers’ cash at it, without reform, will solve the problem. The main conclusion is that for future franchises the DfT “should impose clear obligations on operators to avoid overcrowding, and to bear the costs of meeting that obligation themselves.”  This is currently a requirement for only one rail franchise: Chiltern Trains.

So what about Network Rail and the Office of Rail Regulator? Well the problems at these two bodies are much more worrying. A conclusion in the report states:

“The Office of Rail Regulation does not have a grip on Network Rail's efficiency and appeared remarkably relaxed about the continuing gap in performance between Network Rail and international comparators.”

It is an indictment that despite the Rail Regulator being formed in 1994 it still does not have a full understanding of Network Rail’s costs. The inability to drive efficiency savings at Network Rail is largely down to their status as a guaranteed monopoly company.

“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. The Government indemnifies Network Rail's debts which reduces the pressure from lenders on it to increase efficiency. Network Rail is also the monopoly provider of railway infrastructure in Great Britain.”

But the majority of its funding comes from the taxpayer and it is misclassified as a private company. The Rail regulator argues that Network Rail’s monopoly status makes it difficult to challenge their costs. International benchmarking is the only value for money comparison that they can make. With efficiency savings required by the Regulator only expected to narrow the gap between Network Rail and its European peers by two thirds over the next four years, it is safe to say that Network Rail is performing poorly.

Despite the poor performance of Network Rail, their executives are still very well remunerated. In 2009-10 the outgoing Chief Executive’s total remuneration was £1.2 million, £613,000 of which was salary.

So can the DfT, who provide the majority of Network’s Rail funding and underwrite their debt, demand more efficiency from Network Rail?  Well no, because Network Rail is a “private company”:

“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.”

The Public Accounts Committee (PAC) released a new report yesterday about increasing passenger rail capacity. And the conclusions are not very pretty.

The PAC is reporting on the progress of the Department for Transport’s (DfT) five-year, £9 billion investment programme to improve rail travel, in particular by increasing the number of passenger places on trains by March 2014. They are currently 18 months into the programme.

Here is a paragraph from the summary:


"The Department's latest plans show that all the relevant targets will be missed. There will be 15% fewer extra places delivered in London in the morning peak and 33% fewer into other major cities, compared to the numbers the Department stated would be needed just to hold overcrowding at current levels. Despite the impact of the present economic downturn on journey numbers, we are concerned that the failure to meet the targets set will lead to substantial increases in already unacceptable overcrowding levels by 2014 and beyond. Rising demand for rail travel combined with serious cuts in public expenditure make it imperative that the rail industry becomes more efficient, otherwise the passenger will suffer. The Department told us that levels of crowding, and ticket prices, depend on policy decisions about the level of government subsidy. We are strongly of the opinion that this view is misguided as it ignores the scope for efficiency savings to release resources for front line services. The industry's ability to provide a good quality rail service, including acceptable levels of crowding, depends crucially on the efficiency of all players in the rail industry, and of Network Rail in particular."

So whose fault is it that the five year plan is already missing its target? Well, it’s very complicated and the complexity involved in trying to work out how the rail industry actually works may be the problem. As is stated in the report:

“The unique and complex structure of the rail industry makes it inherently cumbersome and expensive, and provides little external challenge to its vested interest in its own growth.”

It would appear the DfT – who are responsible for ensuring extra space on trains from train operators – are not looking to drive down costs, arguing the fate of the rail system depends upon how much taxpayers’ money they receive. This shows that the department rely too much on inputs rather than real reform that would not require train operators to expand their fleets or substantially redevelop stations to avoid excessive overcrowding. To get extra places on trains the taxpayer has to bear much of the train operators' costs as well as providing funds to Network Rail for it to build longer platforms.

Thankfully, the PAC is sceptical that throwing yet more taxpayers’ cash at it, without reform, will solve the problem. The main conclusion is that for future franchises the DfT “should impose clear obligations on operators to avoid overcrowding, and to bear the costs of meeting that obligation themselves.”  This is currently a requirement for only one rail franchise: Chiltern Trains.

So what about Network Rail and the Office of Rail Regulator? Well the problems at these two bodies are much more worrying. A conclusion in the report states:

“The Office of Rail Regulation does not have a grip on Network Rail's efficiency and appeared remarkably relaxed about the continuing gap in performance between Network Rail and international comparators.”

It is an indictment that despite the Rail Regulator being formed in 1994 it still does not have a full understanding of Network Rail’s costs. The inability to drive efficiency savings at Network Rail is largely down to their status as a guaranteed monopoly company.

“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. The Government indemnifies Network Rail's debts which reduces the pressure from lenders on it to increase efficiency. Network Rail is also the monopoly provider of railway infrastructure in Great Britain.”

But the majority of its funding comes from the taxpayer and it is misclassified as a private company. The Rail regulator argues that Network Rail’s monopoly status makes it difficult to challenge their costs. International benchmarking is the only value for money comparison that they can make. With efficiency savings required by the Regulator only expected to narrow the gap between Network Rail and its European peers by two thirds over the next four years, it is safe to say that Network Rail is performing poorly.

Despite the poor performance of Network Rail, their executives are still very well remunerated. In 2009-10 the outgoing Chief Executive’s total remuneration was £1.2 million, £613,000 of which was salary.

So can the DfT, who provide the majority of Network’s Rail funding and underwrite their debt, demand more efficiency from Network Rail?  Well no, because Network Rail is a “private company”:

“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.”

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