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McNulty’s rail report points the way to £1bn operational savings

Transport secretary Philip Hammond last week pledged to instigate a “radical shake-up” of the railways to reduce running costs.

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 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.

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

“Incentives on the railway have become blurred and interests misaligned, 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.

“Incentives on the railway have become blurred and interests misaligned”

Philip Hammond

“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 industry, over and above the cost efficiencies the regulator is driving from Network Rail,” said ORR chief executive Bill Emery.

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