Rail 2020

In May 2011 a review led by Sir Roy McNulty published its report on the efficiency of the UK railway and concluded that there was a 40% efficiency gap between the UK railway and European comparators. This prompted the Government to publish a Command Paper on rail, Reforming our Railways, which, amongst other things, tasked the rail industry with making savings amounting to £3.5 billion a year (in 2008/09 prices) by 2018/19.

We looked at this issue in the wider context of asking why the railway should be in receipt of public support, where that subsidy should be targeted, and what should be the Government’s vision for rail by the time the McNulty savings are due to be delivered at the end of the decade.

There are two main reasons for the increase in the rail subsidy in recent years. Firstly, increased demand for rail has led to new capital projects to improve capacity, increasing Network Rail’s level of borrowing and the cost of servicing that debt as well as fuelling increased costs for rolling stock and other facilities. Secondly, the unit costs of train operating companies have not fallen as usage has increased.

We believe that there are justifiable economic, social and environmental reasons for subsidising the railway . However, currently it is not clear what the Government is getting for its money. We recommend that the Government publish and consult on a clear statement of what the subsidy is for and where it should be targeted.

We support the general approach to achieving efficiencies set out in the McNulty report, subject to concerns in a number of areas, including staffing, safety, and protecting passengers’ interests. If savings do not materialise the case for more far-reaching structural changes to the industry will be compelling.

We intend to report soon on the collapse of the competition for the West Coast Main Line franchise and to look at the outcome of the Brown review of franchising. In the meantime we suggest that the DfT consider delegating the letting and management of franchises to an arms-length body which can draw on more commercial expertise than the department has at its disposal. We see merit in continuing with longer franchises but recommend exploring options for reviewing contracts every five years and bringing in consideration of wider policy objectives, including passenger experience. In order not to hold up the next round of franchise re-lettings we recommend that those franchises which must be re-let soon be tendered on the basis of medium-term franchises of seven to ten years’ duration.

The Office of Rail Regulation and Rail Delivery Group both have important roles to play in delivering the McNulty efficiencies. Both must take steps to show that they are capable of rising to this challenge.

Finally, we set our vision for rail which includes the following elements:

• Clarity about the objectives of subsidising rail and how these can be achieved • A clear link between policy on rail and other aspects of transport policy, for example a 4 focus on sustainable end-to-end journeys • A strategic approach to policy-making by DfT which does not sacrifice democratic accountability; assisted by a strong industry regulator, and an effective industry leadership • More transparency about the costs of rail, which helps with scrutinising different approaches to organising rail operations (eg alliances, different forms of franchises)

and debates about the costs of new services and infrastructure • Passenger interests more clearly taken into account in deciding questions of rail policy • More modern, flexible fare and ticketing options and a clear long-term policy on regulated fares • No diminution in existing safety standards.