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Government gives strongest indication yet of Network Rail shake-up

Transport secretary Philip Hammond today pledged to instigate a “radical shake-up” of the railways to reduce running costs by up to £1bn per year.

The potential savings of up to £1bn - which can be achieved without cutting services - have been identified by Sir Roy McNulty after the government commissioned him to investigate the industry’s value for money.

McNulty’s interim findings reveal the key to making these savings is much closer working and alignment of incentives between train operators and Network Rail and strong leadership across the industry. This is an indication of the likely proposal to regionalise Network Rail as a result of the final report.

The government has today also confirmed plans to reform the rail franchising system to make franchises longer, more flexible and more responsive to the needs of passengers while providing better value for taxpayers. Franchises will typically run for 15 years, so long as performance levels are maintained (see box).

Details of the new franchising model will now be further developed alongside plans for wider industry reform.

“Incentives on the railway have become blurred and interests mis-aligned, to the detriment of efficiency, value for money and passenger satisfaction,” said Hammond. “At present Network Rail answers to its regulator, not to its customers, the train operators.

“Meanwhile, train operators have no interest in Network Rail’s costs, since any increases or decreases are passed straight through to the Government. This situation cannot be allowed to continue.

McNulty’s final report - which is jointly sponsored by the Office of Rail Regulation (ORR) - will be delivered in April 2011. However, the government said its initial findings deserve immediate action and Hammond plans to establish a “high-level group”, which he will chair, to drive reform and examine the options for getting Network Rail and train operators to work together more efficiently.

The reforms could lead to route or area based alliances, aligning track and train operations where such an arrangement best serves customers.

But the government said there will continue to be some functions which can only be discharged by a single national body, acting as custodian of the network. Final proposals for industry reform will be published by November 2011.

“The interim Value for Money report indicates there is scope to significantly reduce costs across the entire rail industry, over and above the cost efficiencies the regulator is driving from Network Rail,” said ORR chief executive Bill Emery.

New franchises

The West Coast Main Line franchise which operates trains between London and the West Midlands, North West and Scotland, will be the first franchise to be let under the new franchise model. The new West Coast franchise will begin in April 2012 and run until the planned opening of a new high speed rail line in 2026. This will be followed by the East Coast Main Line franchise - which operates trains between London and Yorkshire, the North East and Scotland - which will be let as a new 15 year franchise in late 2012. The Greater Anglia franchise - which operates trains between London and Essex, Norfolk and Suffolk - will also be let as a new-style longer franchise in 2013 and other franchises will be replaced with new, longer, franchises as and when they expire in future years.

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