Rail reform: The rail transformation programme

There has been too little focus on passengers and taxpayers and how to get them a better deal. The Department claims that improving passenger experience is at the heart of its reform plans, but poor performance persists across the rail network. In 2022–23, 13.7% of trains were delayed and 3.8% were cancelled. While the Department is fully aware of what is important to passengers, it has not delivered on the basic things that matter most. Taxpayers also continue to subsidise passenger rail services at a level that the Department considers unsustainable (£3.1 billion in 2022–23). It is disappointing to hear that it took a pandemic to make the Department seriously focus on making efficiency savings and changes to improve services. The Department know it needs to increase revenues and reduce costs to get to a more sustainable position, but its focus is on managing costs, while revenue goes directly to HM Treasury, along with responsibility for making up any shortfalls. This means that the Department, train operating companies and HM Treasury have different priorities when making decisions which impact revenue, and the current set up does not create the right incentives to get the best value for money for taxpayers. Recommendation 2 a) The Department should commit to producing a specific passenger-focused plan that is clear to passengers what they should expect from travelling on trains following rail reform, including clear targets that train operators are expected to achieve. b) The Department should work with HM Treasury to resolve the disincentives in the system so that it can bring the level of government subsidy on passenger services to a sustainable level and improve value for money for taxpayers. The Department should set out in its Treasury Minute how it is addressing the disincentives ahead of the next Parliament and full rail reform.

It is unacceptable that so much of the rail network remains so difficult to access for so many people. The Department committed to improving access to the rail 6 Rail reform: The rail transformation programme network and other modes of transport as part of its 2018 inclusive transport strategy and has been running its Access for All programme to address the issues faced by disabled passengers since 2006. However, the Department has made little progress in improving rail services and station infrastructure and this affects various groups of people; for example, disabled passengers, as well as parents with young children, and even the many passengers and tourists carrying luggage who would like to have access to lifts. The Department says that it will be going out to consultation shortly on a national rail accessibility strategy, but it should already have enough information about the current condition of stations and where there are accessibility issues to start tackling problems now and without further delay. Recommendation 3: The Department should fulfil its commitment to improve access to the rail network for all who wish to use it and does not need to wait for further consultation or legislation to make improvements to station facilities and train services. It should report back to the Committee alongside the Treasury Minute on its plans and timetable for when stations and trains will be accessible to all.

We are not convinced that the Department has paid sufficient attention, in advance of the delayed creation of Great British Railways, to the changes it can make now to improve the situation for passengers and taxpayers. The Department expected its reform programme to result in annual savings of £1.5 billion. But GBR has not yet been established and this scale of saving will not materialise for many years. The Department is framing its ambitions for rail reform around the introduction of GBR, seeing this as the point at which it can start to accelerate its reforms. However, it could take up to 2 years after legislation is enacted before GBR becomes operational, while passengers and taxpayers must continue to wait for much-needed improvements. The Department is planning improvement work that does not require legislation in the meantime, but we have not seen any real sense of urgency in what it is trying to do. Recommendation 4: The Department needs to make tangible, visible progress in implementing reforms which improve outcomes for passengers and taxpayers. Its Treasury Minute response should set out a) what passenger improvements and outcomes it has delivered and b) an update on the savings it has made from rail reform in this interim period and how it has made these savings.

Six years since the Department started work on rail reform, it has failed to resolve fundamental disagreements and clarify key aspects of reform. The Department acknowledges that, while its white paper set the broad direction and detail for some areas of reform, there were still disagreements with HM Treasury and other stakeholders in some important areas. Unresolved issues remain regarding the extent of GBR’s role and responsibilities including the level of independence and ability it will have to be a “guiding mind” for the railways; the future commercial model between GBR and commercial operators; and how fares would be set. While it may be quite common in complex policy areas for there to be some areas of disagreement, it is surprising that the reform programme got underway without the Department and HM Treasury agreeing on such core elements. It remains to be seen how, in practice, GBR will balance providing a “guiding mind” with stepping in and directing stakeholders to a specific course of action when required. Rail reform: The rail transformation programme 7 Recommendation 5: The Department should urgently resolve disagreements ahead of taking forward reform in the next Parliament. Its Treasury Minute response should set out what areas remain to be agreed and how it and HMT plan to resolve these.

The Department has failed to engage with the workforce to successfully deliver its reform ambitions. Good policymaking relies on effective stakeholder engagement. The Williams Rail Review involved extensive consultation with trade unions and workers across the railway to understand their perspectives. However, while the Department expects to implement significant reforms through the workforce, officials have had little engagement with the workforce on rail reform. The absence of such engagement means that the Department risks not having a full understanding of the challenges and practical realities faced by the staff on the ground responsible for implementing the reforms. Network Rail notes that it improved productivity through engaging with its workforce, reaching agreement on modernisation measures and changes in terms and conditions, saving around £775 million. Recommendation 6: The Department should meaningfully engage with the workforce in order to implement its reforms successfully. In its Treasury Minute response it should set out how it plans to engage with the workforce as part of implementing its reforms. 8 Rail reform: The rail transformation programme 1 Implementing rail reform

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Transport (the Department) and Network Rail, in its capacity as lead for the Great British Railways Transition Team (GBRTT), about rail reform.1

Government and industry reviews of the railways over the past two decades have identified similar problems to the Williams review.11 We asked the Department why these reviews had failed to lead to improvements. It said that reviews have not always looked at the whole of the railway in its entirety as a system and that, improving the performance of the railway, both financially and for passengers, requires an examination of the whole system, which is what the Williams Review did, and which is how its current reform programme is focused. The Department told us about its hopes that this is a sustained programme that will drive reform “to some genuinely significant outcomes for passengers and taxpayers”.12 Getting passengers and taxpayers a better deal

The rail sector’s performance for passengers and the taxpayer is not good enough and has not been for some time.13 The Office of Rail and Road reported 3.8% of trains were classified as cancelled in 2022–23, along with 86.3% of trains arriving at their final destination on time, meaning that 13.7% were delayed. These levels of performance in 2022–23 were at or worse than levels in 2019–20.14 ‘Passengers must receive high-quality, consistent services day in, day out’ was one of the ten key outcomes that the Department aimed to deliver through its rail reform programme.15 The Department told us that increasing revenues and passenger numbers are the absolute priority.16 It stated further that it knows from its research that the thing customers care most about is whether their train is going to turn up and is it going to run on time.17 Network Rail acknowledged that reliability is one of the biggest issues, and described four other passenger priorities: 8 C&AG’s Report, para 2.10 9 Q 10 10 Q 9 11 C&AG’s Report, para 1.5 12 Q 89 13 C&AG’s Report, para 16 14 C&AG’s Report, para 1.6 15 C&AG’s Report, Figure 2 16 Q 39 17 Q 49 10 Rail reform: The rail transformation programme “…punctuality of your service, the ability to get a seat, the sense that you are getting a fair fare—in other words, that you are not being diddled—and, if something is going wrong, that you get a sense that somebody is looking out for you”.18

Delays to reform have added pressure to the Department’s finances and higher costs to the taxpayer for longer. The Department’s costs now exceed the revenue it receives and at a level that the Department views as unsustainable – the Department spent £3.1 billion subsidising train services in 2022–23.19 We asked the Department about the level of government subsidy for the railways and what is sustainable. The Department told us that there is no one level it could identify as sustainable but that the level of funding and subsidy for the railway is not at a sustainable level and that it needs to do two things: increase revenues and reduce costs.20

The Department told us that the pandemic presented a fundamental challenge to sustainably funding the railways and that the financial pressures have driven a stronger focus to look at the whole system and improve performance, both financially and for passengers.21 The pandemic also exposed the scale of challenge on costs. Network Rail told us that, in previous years, despite excessive costs in the system “the top revenue line was growing. It took the imperative out of the system [to focus on costs] because the numbers were still balancing themselves.”22 The interim financial framework for the railways put in place in response to the pandemic means that HM Treasury carries the risk of any shortfalls in revenue, as it was uncertain how passenger demand would recover. The separation of cost and revenue risk has meant that the Department, HM Treasury, and train operating companies have different priorities when making decisions which impact revenue.23

Rail Partners highlighted to us the risk that the Department may look to cut passenger services to save costs which would make the railway less attractive for passengers, mean lower revenues flowing into HM Treasury, and add to cost pressures. It said that it is essential to reunite cost and revenue in the Department in the short-term, and in an arms- length body after that, to avoid a sole focus on cost reduction that is negatively impacting the customer experience and revenue generation.24 Improving accessibility

Improving accessibility runs throughout the Department’s reform ambitions and is one of the 62 commitments included in its White Paper: ‘The first robust national accessibility strategy and long-term investment programme will improve inclusion and access for all.’25 Even earlier than its White Paper commitment, the Department 18 Q 44 19 C&AG’s Report, paras 11, 1.7 20 Q 37 21 Qq 9, 89 22 Qq 89–90 23 C&AG’s Report, para 11 24 RTP0003 25 Great British Railways: The Williams Shapps Plan for Rail, CP 423, May 2021 Rail reform: The rail transformation programme 11 committed to improving access to the rail network and other modes of transport, as part of its 2018 inclusive transport strategy and has been running its Access for All programme to address the issues faced by disabled passengers since 2006.26

We asked the Department about the passenger improvements it has made for disabled passengers and people who find accessibility an issue. The Department recognised that it needs to make sure the railway works for disabled passengers, and that accessibility is going to increase in importance with demographic changes. The Department told us that it will shortly be going out to consultation on a national rail accessibility strategy so that it can “…hear what people actually need, rather than us thinking that we know what they need.” The Department told us that, in some ways, it was “surprised” that it needed to make a commitment to review station accessibility.27 We shared with the Department the example of Leagrave station where a feasibility study for lifts and improvements has been undertaken but, years later, rail users are still waiting for action.28

We highlighted our concerns about the impact of the Department’s lack of progress in improving rail services and station infrastructure on various groups of people. For example, disabled passengers, as well as parents with young children, and even the many passengers and tourists carrying luggage who would like to use stations but are restricted, not just because of the condition and limitations of the infrastructure but also because there are not always staff available to operate the ramps and the lifts.29 We heard from the Royal National Institute of Blind People (RNIB) that partially sighted people feel strongly that they should not have to be experts on knowing who runs which trains or staffs which stations – they consistently report that this makes a difference to their experience. The RNIB told us that staff training, digital and physical infrastructure should be as consistent as possible across the network, without passengers needing to concern themselves with which entities are responsible for different aspects of their journey.30 26 The Inclusive Transport Strategy: Achieving Equal Access for Disabled People, Department for Transport, July 2018 27 Q 58 28 Q 59 29 Q 64 30 RTP0007 12 Rail reform: The rail transformation programme 2 Making progress without legislation Improving outcomes

The Department’s scale of activity compared to its initial reform programme is much reduced. Its focus is on three types of work: short-term benefits it can achieve without legislation; promoting greater collaboration and culture change within the rail sector; and continuing some work on the future end state for reform.31 We asked the Department what realistic progress they can make without legislation. It told us it cannot do the complete job but can make inroads and is concentrating on several things. It explained it is looking to introduce an integrated business planning process so that it can start looking at whether decisions deliver better outcomes for the system, or just better outcomes for individual organisations. It highlighted an example of a pilot between Network Rail and the train operating company Anglia which is focusing on how to improve collaboration and decision making to deliver passenger outcomes.32

We asked the Department for clarity around how the new contracts would work. The Department told us that it is in the process of developing a further version of national rail contracts, designed to further encourage growth in revenue and passengers, and focus on the passenger experience. It said that until it has real clarity on when GBR will be created, and who the contracting body will be, it will not be in a position to return to competition with passenger service contracts.33 The Department told us that it will have much greater certainty once legislation is in Parliament and it can then start to accelerate some of its plans. It said that the period between legislation passing and GBR becoming operational could take up to two years.34 The Department had expected reform to result in annual savings of £1.5 billion from 2026–27 onwards, but these savings have been delayed with Great British Railways not yet established.35 We asked the Department if it was still on track to meet its planned savings. The Department told us that it does not expect to achieve all the savings it forecast and cited legislation as one of the reasons why it cannot realise the full benefits of reform.36

We asked the Department what we can expect to see within the next six months that will make a difference and improve the passenger experience. The Department provided examples such as the Great British Rail sales, roll out and trialling of more pay-as-you- go technology for customers in various parts of the country, and accessibility audits of stations. But we pointed out that it is the basic things like reliability and punctuality that matter much more to passengers than the projects the Department described.37 Rail Partners highlighted published data which shows that Network Rail, as infrastructure manager, is often responsible for delays and disruption to train services rather than the train operating companies. They said it is important to diagnose the causes of the challenges on the railway correctly if the right solutions are to be prescribed.38 We pushed the Department to tell us how it is focusing on performance and making sure that trains 31 C&AG’s Report, para 13 32 Qq 24, 26 33 Q 75 34 Qq 76–77 35 C&AG’s Report, para 10 36 Q 41–43 37 Qq 48–49 38 RTP0003 Rail reform: The rail transformation programme 13 run to time. It told us about working with Network Rail and the operators to really focus on those operators where performance has been particularly challenging. Network Rail told us about the problems caused by poor drainage and how it is increasing its investment in additional drainage and track teams and replacing assets earlier.39 Clarifying key aspects of reform

The Department intended that Great British Railways (GBR) would act as the ‘guiding mind’ for the railways, with responsibility for the whole rail system.40 But the Department and HM Treasury disagreed on key areas of rail reform from the start, including GBR’s remit and level of independence, the extent to which it or the private sector should set fares and services, and views on how best to maximise rail revenue and manage costs.41

We asked the Department about the challenges presented by not having agreement with HM Treasury from the outset of the programme about some of these aspects. The Department told us that the white paper had the collective agreement of ministers and set the broad direction and detail for some areas of reform but, in other areas, it did not set out all the detail and differing views became apparent over important, technical issues. The Department held the view that it is not exceptional for such ongoing debate to happen in complex policy areas that have a significant financial impact on government finances. It said that an Infrastructure and Projects Authority (IPA) review around 2022 had highlighted that it needed greater alignment with HM Treasury over its plans if it was to make progress.42 The Department told us that there are still outstanding issues for discussion with HM Treasury around GBR’s responsibilities and level of independence, and the future commercial model and the extent to which the private sector takes more of the revenue risk.43

We asked the Department for its views on the current commentary around GBR and the balance between it acting as a guiding or directing mind. The Department said it is important to find the right balance between the guiding mind who is guiding but also who is prepared to stand up and take the accountability to fix those things. Network Rail’s view was that, in an increasingly devolved United Kingdom, the idea of a central, directing mind telling people in Scotland, Wales, London and other mayoral authorities what sort of rail service they can have would not be acceptable.44

Reviews by the IPA and the Department in early 2023 found that the Rail Transformation Board’s governance was confused, accountabilities unclear, and there was not agreement across stakeholders on the scope and delivery approach of the Programme. The Department recognises that there will be a challenge in getting stakeholders to prioritise work intended to improve rail before the timing of future reform is clearer.45 It told us that it has created a rail reform board which has the right people around the table, with very clear accountabilities, both for individual projects and within its wider departmental governance.46 39 Q 49–52 40 C&AG’s Report, para 2 41 Q 36; C&AG’s Report, para 9, para 2.8 42 Q 28–20 43 Q 36 44 Q 79 45 C&AG’s Report, paras 9, 3.9 46 Q 19 14 Rail reform: The rail transformation programme Engaging with the workforce

The Department agreed with HM Treasury that it would deliver £2.6 billion in savings from rail reform by 2024–25, with most savings expected to come from workforce reform plans including modernising ways of working within train stations, improving control and deployment of drivers, and reductions in staff numbers.47 The Department recognised achieving workforce reforms was particularly high risk as they would be subject to negotiations with trade unions.48 The Department told us that it has achieved savings of £2 billion but some elements of workforce reform have been challenging to deliver.49

Good policy is made through involving stakeholders. We asked about the Department’s engagement with the workforce and how it understands the practical realities and challenges facing those responsible for implementing policy on the ground. The Department told us that when its officials supported the Williams Review, they consulted very widely with trade unions and workers across the railway, to make sure there was a good understanding of perspectives. It said that, as it has taken forward reforms, it has tried to make sure it has done the same in specific areas. But we heard that the Department has not routinely engaged with rail unions at official level and that this has been done through ministers.50 The Department later wrote to us to clarify the last meetings that ministers, supported by senior officials, have held with members of trade unions.51 The Associated Society of Locomotive Engineers and Firemen (ASLEF) told us that it had seen a reluctance from the Department to work constructively with the workers and their trade unions in the same manner that was achieved during the pandemic.52

Network Rail told us about its good, constructive relationships with trade unions which have allowed it to achieve workforce efficiency and productivity savings of around £775 million.53 They provided examples of headcount reductions from losing around 2,500 managers, work reductions whereby technology means they no longer use people for certain tasks, and improvements in productivity through changes to terms and conditions.54 47 C&AG’s Report, para 2.5 48 C&AG’s Report, para 8 49 Q 43 50 Qq 65, 95, 98 51 Correspondence from Department for Transport, 7 May 2024 52 RTP0002 53 Q 80–83 54 Qq 82, 84, 87 Rail reform: The rail transformation programme 15