Overview of costs in the English rail system
Public Accounts Committee
Closed
Inquiry
The rail franchise model has high fixed costs and low profit margins. The Department for Transport’s (DfT) net income from letting franchises fell significantly from 2016-17, becoming a net government subsidy in 2019-20. As passenger numbers dropped in the COVID-19 pandemic, rail industry income fell dramatically. It is unclear how …
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7
Recommendations
19
Conclusions
1
Report
1
Oral session
1
Event
Activity timeline 3 events
28 Oct
2021
2021
7 Jul
2021
2021
Report published
13 May
2021
2021
Oral evidence
Oral evidence sessions 1 session
13 May 2021
View on parliament.uk
Overview of costs in the English rail system
Andrew Haines · Network Rail
Bernadette Kelly CB · Department for Transport
Conrad Bailey · Department for Transport
John Larkinson · Office of Rail and Road
Reports 1 report · click to expand
| Title | HC No. | Published | Items | Response |
|---|---|---|---|---|
| Tenth Report - Overview of the English rail system | HC 170 | 7 Jul 2021 | 26 | Responded |
Recommendations & Conclusions
26 results
2
Recommendation
Accepted
Tenth Report - Overview of the Eng…
In recent years, we have identified serious failings in the rail system, and the Department...
In recent years, we have identified serious failings in the rail system, and the Department must now overcome significant long-standing issues to bring about complex reform. We have previously reported on the problems inherent in the rail system, such as: …
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Government Response
The government agrees and will write to the Committee by December 2021, detailing the Rail Transformation Programme with three phases of delivery including legislative reform by 2022-23 and Great British Railways fully operational from 2024.
HM Treasury
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3
Recommendation
Accepted
Tenth Report - Overview of the Eng…
Published information from the Department and the Office of Rail and Road on whole-system costs...
Published information from the Department and the Office of Rail and Road on whole-system costs and revenues is not sufficient to inform proper oversight of the rail system, given the extent of taxpayer exposure. The arrangements for delivering rail services …
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Government Response
The government accepts the recommendation and will write to the Committee in December 2021 with plans to improve transparency. It has begun developing whole-system financial reporting capabilities and will consider options for publishing this data, while noting potential commercial and regulatory constraints.
HM Treasury
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4
Recommendation
Accepted
Tenth Report - Overview of the Eng…
It is not yet clear that the interim National Rail contracts fairly distribute risks between...
It is not yet clear that the interim National Rail contracts fairly distribute risks between government and operators, or provide incentives for operators to deliver efficient, high-quality, and value-for-money passenger services. In previous reports the Committee highlighted failings in the …
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Government Response
The government accepts the recommendation, outlining that National Rail Contracts (NRCs) require operators to deliver against annual business plans and performance targets, with revenue and cost risk primarily with the Department. Performance-based fees directly incentivise improvements, and ABPs include commitments to specific activities and outputs.
HM Treasury
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5
Recommendation
Accepted
Tenth Report - Overview of the Eng…
We are disappointed at the lack of progress in agreeing a specific and funded plan...
We are disappointed at the lack of progress in agreeing a specific and funded plan for the electrification required to achieve the government’s own net zero targets. Electrification of the network is the key mechanism for delivering rail decarbonisation. It …
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Government Response
The government accepts the recommendation and will write to the Committee in December 2021. It has published the Transport Decarbonisation Plan and Rail Environment Policy Statement, committing to an ambitious electrification program guided by Network Rail’s TDNS, and will fund new schemes through the Rail Network Enhancements Pipeline.
HM Treasury
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6
Recommendation
Accepted
Tenth Report - Overview of the Eng…
It is not clear to us how Network Rail expects to achieve the remaining efficiencies...
It is not clear to us how Network Rail expects to achieve the remaining efficiencies planned in Control Period 6. In Control Period 5 (2014–15 to 2018–19), Network Rail failed to achieve its efficiencies target as agreed with the Office …
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Government Response
The government accepts the recommendation, and Network Rail will write to the Committee by December 2021 to detail its efficiencies plan for Control Period 6. This plan will include improvements in approach, process, incentivisation, governance, efficiency targets, the framework for tracking costs, and the impact of COVID-19.
HM Treasury
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1
Conclusion
Tenth Report - Overview of the Eng…
On the basis of a Report by the Comptroller and Auditor General, we took evidence...
On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Transport (the Department), Network Rail and the Office of Rail and Road on costs in the English rail system.1 We also …
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HM Treasury
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20
Conclusion
Acknowledged
Tenth Report - Overview of the Eng…
Net government funding increased 99.7% in real terms between 2015–16 and 2019–20 from £2.6 billion...
Net government funding increased 99.7% in real terms between 2015–16 and 2019–20 from £2.6 billion to £5.1 billion. This reflects increases in expenditure on operating and maintaining rail network infrastructure and the pre-COVID-19 deterioration in the passenger rail market as …
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Government Response
The government acknowledges the Committee's conclusion regarding increased government funding for rail. It recognises the value of greater financial transparency and states it has already started publishing operational support payments data, is developing whole-system financial reporting, and will consider options for its publication, subject to constraints.
HM Treasury
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7
Conclusion
Not Addressed
Tenth Report - Overview of the Eng…
As well as providing critical revenue for the rail system, passenger rail travel supports wider...
As well as providing critical revenue for the rail system, passenger rail travel supports wider government objectives around transport decarbonisation and achieving net zero. We asked the Department how they planned to encourage people out of their cars onto rail. …
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Government Response
The government response is boilerplate text, listing only the relevant reports and failing to address the committee's conclusion regarding the lack of urgency and clarity in promoting rail travel.
HM Treasury
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8
Conclusion
Accepted
Tenth Report - Overview of the Eng…
The Department referred to its recently published strategies on bus travel18 and cycling and walking19...
The Department referred to its recently published strategies on bus travel18 and cycling and walking19 and told us that integration between modes of transport is “critical” to make public transport an attractive and practical choice for passengers.20 However, in these …
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Government Response
The government agrees with the committee's conclusion and commits to further integrating public transport, detailing plans for bus funding, cycling facilities at stations, and integrated station management under Great British Railways.
HM Treasury
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9
Conclusion
Accepted
Tenth Report - Overview of the Eng…
We have previously reported on the problems inherent in the rail system which have led...
We have previously reported on the problems inherent in the rail system which have led to poor performance and reliability of the network. Even before the pandemic, we and the Transport Committee had reported on the Department’s franchising model and …
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Government Response
The government acknowledges the Committee's conclusions regarding past rail system problems and the broken franchising model. It has set up a comprehensive Rail Transformation Programme, aiming to deliver a new rail system with Great British Railways fully operational from 2024 onwards, through three distinct phases of design, capability building, and transition.
HM Treasury
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10
Conclusion
Accepted
Tenth Report - Overview of the Eng…
We were interested to hear the Department’s views on the main issues caused by the...
We were interested to hear the Department’s views on the main issues caused by the rail system’s current structural organisation. The Department recognised that problems have emerged over a number of years, partly the result of poor alignment between Network …
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Government Response
The government agrees and has established a Rail Transformation Programme with three phases, including designing a Target Operating Model, progressing legislation for structural reform by 2022-23, and making Great British Railways fully operational from 2024.
HM Treasury
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11
Conclusion
Accepted
Tenth Report - Overview of the Eng…
After our evidence session, on 20 May, the Department published its long-delayed Rail white paper,...
After our evidence session, on 20 May, the Department published its long-delayed Rail white paper, which outlines its “once-in-a-generation” reforms planned for the rail system, including replacing franchising and better integrating infrastructure with passenger services.25 The Department acknowledges that it …
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Government Response
The government acknowledges the Committee's conclusion regarding the Rail white paper and the complex reforms it outlines, including the associated risks. It has established a Rail Transformation Programme, detailing a three-phase approach to implement reforms, design a target operating model, progress legislation, and have Great British Railways fully operational from 2024 onwards.
HM Treasury
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12
Conclusion
Accepted in Part
Tenth Report - Overview of the Eng…
Since privatisation in the 1990s, cash flows in the rail system have become increasingly complex.
Since privatisation in the 1990s, cash flows in the rail system have become increasingly complex. Although the rail system is privatised, government still provides significant funding for infrastructure operations, maintenance and renewals, and ongoing subsidy for passenger service operations. The …
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Government Response
The government acknowledges the need for greater financial transparency, is already publishing some operational support data, and has begun work to develop ‘whole-system’ financial reporting, but will only consider options for publishing this material once complete due to commercial and regulatory constraints.
HM Treasury
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13
Conclusion
Accepted
Tenth Report - Overview of the Eng…
The Rail white paper outlines government’s plans for a new rail system, with one body...
The Rail white paper outlines government’s plans for a new rail system, with one body responsible for overseeing infrastructure and passenger services and with less complex financial transactions.32 The Office of Rail and Road told us that such a “guiding …
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Government Response
The government agrees with the (implied) recommendation to implement its white paper, having initiated a Rail Transformation Programme. This programme involves three phases: designing a Target Operating Model, building operational capability and progressing legislation by 2022-23, and transitioning to Great British Railways fully operational from 2024 onwards.
HM Treasury
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14
Conclusion
Acknowledged
Tenth Report - Overview of the Eng…
Specifically in relation to passenger service operations, prior to the COVID-19 pandemic, private sector companies...
Specifically in relation to passenger service operations, prior to the COVID-19 pandemic, private sector companies operated passenger services under a franchise model but still received some level of government funding. The amount of government funding provided to train operators has …
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Government Response
The government acknowledges the Committee's conclusion regarding the significant increase in taxpayer funding and the Department's new contractual arrangements for passenger services. It details that National Rail Contracts (NRCs) involve annual business plans, with revenue and cost risk primarily with the Department, and performance incentivised through fees and contractual commitments, with NRC rollout ongoing.
HM Treasury
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15
Conclusion
Accepted
Tenth Report - Overview of the Eng…
The Department acknowledged that there were significant challenges inherent in its franchising model used prior...
The Department acknowledged that there were significant challenges inherent in its franchising model used prior to the pandemic. It told us that the previous surplus in franchising costs had become a deficit prior to the pandemic.37 During the final four …
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Government Response
The government agrees and is implementing National Rail Contracts (NRCs) that require operators to deliver against annual business plans and performance targets, shifting revenue and cost risk to the department and incentivising performance through fees.
HM Treasury
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16
Conclusion
Accepted
Tenth Report - Overview of the Eng…
Our previous reports have covered some of the commercial difficulties caused by the Department’s franchising...
Our previous reports have covered some of the commercial difficulties caused by the Department’s franchising model. In the worst-case scenarios, issues such as over- optimistic assumptions of passenger growth led to severe operator losses and early contract terminations.39 These contract …
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Government Response
The government agrees and is implementing National Rail Contracts (NRCs) which shift revenue and cost risk to the department, require operators to meet annually-agreed business plans, and incentivize improved performance through fees, addressing past franchising model issues.
HM Treasury
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17
Conclusion
Accepted
Tenth Report - Overview of the Eng…
The Department updated us on the Emergency Recovery Measures Agreements (ERMAs), which it put in...
The Department updated us on the Emergency Recovery Measures Agreements (ERMAs), which it put in place as an overlay to franchising agreements in response to the dramatic loss in passenger revenue caused by the COVID-19 pandemic. The ERMAs transferred all …
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Government Response
The government agrees with the committee's observation and provides details on the ongoing rollout of National Rail Contracts (NRCs), explaining how these new performance-based contracts will evolve to manage costs and incentivize efficiency.
HM Treasury
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18
Conclusion
Acknowledged
Tenth Report - Overview of the Eng…
Following our session on 13 May 2021, the Department told the Transport Committee that negotiations...
Following our session on 13 May 2021, the Department told the Transport Committee that negotiations with all train operators have concluded around terminating the underlying franchise agreements, which is necessary to enable the transition of operators 37 Qq 19, 31 …
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Government Response
The government acknowledges the Committee's observations on the transition to National Rail Contracts (NRCs). It details that NRCs require operators to deliver against annual business plans with revenue and cost risk largely with the Department, and performance is incentivised through fees and contractual commitments to specific activities.
HM Treasury
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19
Recommendation
Accepted
Tenth Report - Overview of the Eng…
We were concerned that the short-term nature of these new contracts could fail to incentivise...
We were concerned that the short-term nature of these new contracts could fail to incentivise operators to make cost savings and improve performance, and asked the Department to explain how operators would be incentivised to keep costs down. The Department …
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Government Response
The government agrees and explains that National Rail Contracts (NRCs) with annually-agreed business plans and performance-based fees will incentivise operators to make cost savings and improve performance, with three NRCs already rolled out.
HM Treasury
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21
Conclusion
Accepted
Tenth Report - Overview of the Eng…
The Department told us that electrifying the rail network is a key part of decarbonising...
The Department told us that electrifying the rail network is a key part of decarbonising and achieving net zero on the railway and that to ensure success, a steady long-term plan for electrification is needed. However, the Department acknowledged that …
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Government Response
The government agrees with the committee's concern regarding rail electrification, committing to deliver an ambitious, sustainable, and cost-effective programme of electrification and to write to the Committee in December 2021 with further details on funding and long-term plans.
HM Treasury
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22
Recommendation
Accepted
Tenth Report - Overview of the Eng…
The Department acknowledged that long-term, strategic direction on electrification is needed to provide market certainty...
The Department acknowledged that long-term, strategic direction on electrification is needed to provide market certainty for operators, rolling stock companies and the procurement of trains that will be able to operate on the network and to drive innovation. It also …
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Government Response
The government accepts the recommendation, committing to an ambitious, sustainable, and cost-effective electrification program guided by the Transport Decarbonisation Plan and Network Rail’s TDNS. New schemes will be advanced through the Rail Network Enhancements Pipeline, with Great British Railways taking future responsibility.
HM Treasury
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23
Conclusion
Deferred
Tenth Report - Overview of the Eng…
The Office of Rail and Road told us that in Control Period 5 (2014–15 to...
The Office of Rail and Road told us that in Control Period 5 (2014–15 to 2018–19), Network Rail became less efficient and failed to meet efficiency targets.58 Indeed, in contrast to assumptions made by the Office of Rail and Road …
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Government Response
Network Rail will provide a detailed response by December 2021, outlining how it will achieve the £4 billion efficiency target in Control Period 6, including improvements in approach, an efficiency framework, and specific targets for remaining years.
HM Treasury
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24
Conclusion
Deferred
Tenth Report - Overview of the Eng…
In the first year of Control Period 6 (2019–20), Network Rail exceeded its planned efficiency...
In the first year of Control Period 6 (2019–20), Network Rail exceeded its planned efficiency savings; achieving £385 million compared to £316 million expected.61 The Office of Rail and Road told us that Network Rail has improved its efficiency through …
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Government Response
Network Rail will submit a detailed response to the Committee by December 2021, outlining its plan to achieve the efficiency target in Control Period 6, including improvements in approach, an efficiency framework, and specific targets.
HM Treasury
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25
Conclusion
Deferred
Tenth Report - Overview of the Eng…
But Network Rail recognised that there “is still a mountain to climb” to achieve the...
But Network Rail recognised that there “is still a mountain to climb” to achieve the full efficiency improvements it has committed to, and that it will need to continue to increase savings.63 Network Rail estimated that 60% of remaining planned …
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Government Response
Network Rail will write to the Committee by December 2021, committing to delivering efficiency improvements in Control Period 6 and detailing how targets will be met, including improvements in approach, an efficiency framework, and specific targets.
HM Treasury
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26
Conclusion
Deferred
Tenth Report - Overview of the Eng…
In 2020, the Office of Rail and Road reported inherent uncertainty in the value of...
In 2020, the Office of Rail and Road reported inherent uncertainty in the value of some of the efficiency savings made by Network Rail in 2019–20.69 The Office of Rail and Road told us that it has now agreed a …
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Government Response
Network Rail will submit a detailed response by December 2021, outlining how it will achieve its efficiency target for Control Period 6, including improved approaches, an efficiency framework, and details on targets and the impact of COVID-19.
HM Treasury
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