The Department for Transport (DfT) “has neither the necessary
urgency nor appreciates the scale of the challenge ahead” about
the future of rail transport, says today’s report from the Public
Accounts Committee.
The committee has repeatedly highlighted how passengers are too
often an afterthought in major rail projects. The aftermath of
Covid and the end of franchising offer options to deliver better
services for passengers in a way that meets new travel demands,
but the DfT now faces “an extremely challenging and uncertain
environment in which to implement its proposed reforms”.
The English rail system has “suffered from a lack of strategic
direction and accountability for many years” and “struggled to
improve service reliability, quality and flexibility” with
“delivery of services not sufficiently focused on the needs of
passengers”, says the committee’s report.
The Public Accounts Committee says massively increasing expense
to the taxpayer in the English rail system has not been matched
with sufficient transparency about costs and revenues to “inform
proper oversight” in an area with “this extent of taxpayer
exposure”. Costs to the taxpayer in the failed franchise system
almost doubled from 2015 to £5.1 billion in 2019-20, with another
£8.5 billion of government financial support provided after the
arrival of the COVID-19 pandemic finally collapsed the previous
delivery model.
The Committee says it is now unclear that the Department for
Transport’s plan for railways during the transition to a new
system “fairly distributes risks between government and
operators, or provides incentives for operators to deliver
efficient, high-quality, and value-for-money passenger services.”
DfT also “lacks a convincing and timely plan for encouraging
passengers back to the railway as part of COVID-19 recovery” and
this, combined with a “disappointing lack of progress in agreeing
a specific and funded plan for rail electrification” pose further
risk to the government’s own net zero targets.
, Chair of the Public Accounts Committee,
said: “Decent public transport is crucial to both
household and national economies. Rail reform won’t work if it
doesn’t work for tax-payers and fare-paying passengers, and the
Government won’t achieve its economic and environmental goals
without effective rail reform.
“There is everything to play for in delivering a rail system that
delivers for passengers and encourages greener travel. But there
are still many moving parts and a huge challenge to balance
costs. The Government needs to show it can act with urgency and
put passengers’ experience at the centre of its reforms.”
PAC report conclusions and recommendations
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The Department lacks a convincing and timely plan for
encouraging passengers back to the railway as part of COVID-19
recovery, and risks an increase in car use. The
Department and Network Rail have some plans to encourage people
back to rail travel, including increasing the capacity of
services and the information available to passengers. However,
these plans do not reflect the urgency required to avoid an
increase in car use as people begin to travel again, which
would undermine the decarbonisation of transport required to
meet net zero commitments. Even before the pandemic, passenger
demand had plateaued, reflecting a change in travel patterns.
Long-standing barriers to rail travel remain unaddressed by the
Department. For example, fare reform to reduce the complexity
and cost of rail travel and encourage use is long overdue. In
addition, it remains unclear how the Department will better
integrate rail travel with other modes of public transport,
which would improve utility of the whole public transport
network and incentivise use. The Department’s own data shows
that people are returning to cars faster than to other modes of
transport. Without targeted and timely intervention, the
opportunity to reinvigorate use of public transport and prevent
a car-led recovery will be missed.
Recommendation: The Department should write to the
Committee by December setting out the actions it is taking to
encourage passengers back to the railway. This should include:
- a plan for rail fare reform and flexible ticketing
post-pandemic;
- the steps it is taking to integrate across public transport
to provide a joined-up transport system for passengers; and
- how Network Rail is actively managing rail timetables and
services to respond to emerging demand patterns.
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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: poor performance and
reliability of the network; the lack of accountability and
Departmental oversight and the Department’s poor management of
franchises. The COVID-19 pandemic has brought additional
challenges, not least the collapse in passenger demand and
associated revenues, and significant financial cost to
government and the taxpayer. The Department acknowledges that
the rail system faces a complex and deep-rooted set of issues
and that collaboration between all bodies in the system will be
required to make changes across the sector. The COVID-19
pandemic has added to the urgency of these reforms. The
publication of the much-delayed Rail white paper is the
Department’s first step towards much needed reform. Such a
large, “once-in-a-generation” reform programme carries
significant risks. The implementation and execution of reform
will be a complex task relying on multiple actors and
organisations. The Department needs to guard against
over-optimism in relation to its capacity and ability to
deliver this change.
Recommendation: By December, the Department should write
to the Committee setting out clear roles and responsibilities
between bodies in the rail system for the delivery of reforms,
and a timetable for implementing the system-wide reforms proposed
in the Rail white paper.
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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 in England involve
complex financial flows and contractual obligations between a
range of private and public sector bodies. The lack of a
complete set of public data makes it difficult for Parliament
and taxpayers to understand the overall financial position of
the system, and the impact of government’s choices. In
addition, the taxpayer has borne the brunt of the financial
burden of supporting the rail system through the COVID-19
pandemic. Until recovery is more certain, the Department has
said that financial risk will remain with government and the
taxpayer. Given this, the Department must improve transparency
over the costs across the whole industry and use whole-system
financial and management information to oversee its financial
contributions and ensure value for money. On operator contracts
specifically, through its proposed quarterly monitoring, the
Department now has an opportunity to develop its reporting to
inform its oversight and improve the transparency of decisions
made in passenger operations.
Recommendation: The Department should write to the
Committee by December setting out its plans to improve
transparency. As a minimum these should include:
- the regular publication of ‘whole-system’ financial data,
further developed to assist meaningful oversight; and
- regular reporting to Parliament on the progress and
implementation of the Rail white paper.
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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 Department’s previous commercial
model of rail franchising. The COVID-19 pandemic brought an end
to this approach and transferred all revenue and cost risk from
operators to the government through two rounds of emergency
measures which overlaid franchise agreements. These
arrangements directly expose the taxpayer to operators’ income
and expenditure positions and led to significant financial
support to operators during 2020-21. The Department is now
putting in place interim National Rail contracts as a bridge
between emergency measures brought in in response to the
COVID-19 pandemic and implementing long-term reforms to service
delivery set out in the Rail white paper. It will be vital to
put in place contracts which reduce taxpayer risk exposure,
alongside providing the necessary resilience, and meaningfully
incentivising operators to grow revenue, reduce cost and
harness commercial expertise. However, the Department has not
set out in sufficient detail the exact nature of these
contracts, nor how it will use them to incentivise improved
performance. In addition, we are concerned that the majority of
cost risk and revenue risk will remain with government under
these contracts, leaving the taxpayer exposed to fund a
currently unquantified bill. The Department will also require
significant resource to manage and oversee these new contracts.
Recommendation: The Department should set out in its
Treasury Minute response the high-level terms of the new National
Rail contracts, where revenue and cost risk will lie, and how it
is using these to incentive improved performance, beyond the
planned performance-based management fees.
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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 will require a significant
level of investment (estimated between £18 billion and £26
billion, 2020 prices) and the Department recognises that a
steady long-term plan for electrification is fundamental to
achieve net zero commitments efficiently. However, the
Department’s track record on rail electrification projects
reflects in its own words a “feast or famine” approach, which
has directly caused boom and bust problems in the supply chain
for the SMEs involved in the delivery of these projects and
uncertainty for procurement of rolling stock. We reiterate the
Transport Committee’s call for a long-term plan for rail,
including a strategy for decarbonisation and electrification.
The Department has promised a long-term plan but lacks urgency
in its delivery, and its reliance on the delayed all-mode
Transport Decarbonisation Plan is unsatisfactory.
Recommendation: In its December letter to the Committee,
the Department should set out how it will work with others to
deliver the electrification required to meet net zero commitments
over the long term, and how it plans to fund a stable programme
of investment.
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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 of Rail and Road (ORR). In the first two years of
Control Period 6 (2019-20 and 2020-21), Network Rail has made
progress and is ahead of its target on efficiencies. A set of
indicators developed with the ORR will hopefully improve
governance and understanding of the likelihood of efficiencies
in Control Period 6 being met. Management data has also
improved, and Network Rail better understands differences in
efficiencies between its operating regions. However, the scale
of the efficiencies challenge is increasing, and Network Rail
recognises that there is still a mountain to climb to achieve
the £4 billion efficiencies target set for Control Period 6.
Network Rail will need to continue to increase savings year on
year. However, Network Rail is vague on its plans for
efficiencies and seems heavily reliant on achieving remaining
efficiency savings in Control Period 6 through infrastructure
renewals activities.
Recommendation: Network Rail should write to the Committee
by December to set out its efficiencies plan for the remainder of
Control Period 6, how exactly it plans to achieve the £3 billion
of efficiencies remaining, and how the efficiencies process is
governed, monitored and incentivised. /ENDS
- Full inquiry info including evidence received: https://committees.parliament.uk/work/1214/overview-of-costs-in-the-english-rail-system/
