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Value for money review of rail schemes told to report back early

Transport secretary Philip Hammond announced today that he wants an independent review of value for money in the rail industry to report back early with its initial findings.

The review by transport industry expert Sir Roy McNulty will now speed up its work so that preliminary findings are ready in time to inform the Comprehensive Spending Review in the autumn.

The scoping study for McNulty’s report, jointly sponsored by the Department for Transport and the Office of Rail Regulation, was published today, setting out the key issues that need to be dealt with.

The scoping study says that the overall cost of running Britain’s railway has risen but income from users has not kept pace, meaning an increased call on the taxpayer.

The way forward will involve not just cutting costs, the study says, but identifying how the industry can work more innovatively, finding new ways of doing things. The study has no “no go areas” and will aim to create a range of short and long-term solutions across the entire industry. Its scope has been informed by feedback from about 100 stakeholders.

The study will focus on eight broad themes: industry objectives, strategy and outputs; industry leadership, planning and decision-making; interfaces, incentives and structure; revenue; asset management; supply chain management; innovation, standards and safety; and people.

The review was launched last December and asked to report in March 2011, its remit to make recommendations to improve value for money on the railway to ensure future growth is sustainable.

Transport secretary Philip Hammond said: “Passengers and taxpayers will rightly ask why it is that our railways in the UK are so much more expensive than those in the rest of Europe.  

“Given the very significant financial constraints that we face, it is essential that we drive out inefficiencies and reduce costs. Better value for money is the only way we are going to protect train services and avoid very high rises in train fares. 

“This report by Sir Roy McNulty will play a key role in informing how we go about creating an efficient and modern railway fit for the 21st century that provides taxpayers with value for money.”

In setting the context of its study, the review published today said:

  • International benchmarking carried out by ORR suggested that Network Rail is 30 to 50% less efficient in terms of maintenance and renewals expenditure than comparable European railways.
  • The recent HS2 study found that civil engineering costs in the UK were typically up to double those in Europe.  
  • Franchising of trains in countries such as Germany and Sweden has reportedly led to cost reductions of between 20 to 40%, while train operating costs in Great Britain are still above their level in 1996-7.

The Office of Rail Regulation’s Bill Emery said: “In recent years there has been significant growth of passenger and freight traffic on the railway, while performance has improved considerably. However, the current cost of running the railway is too high, and the burden on the taxpayer too great.

“The joint ORR and DfT Value for Money study will bring together the entire rail industry to explore ways in which we can reduce these costs so that our railway can continue to grow and prosper. The study will make recommendations about how the industry can meet the challenges of the future towards achieving our vision of a railway which delivers safety, efficiency and satisfaction levels to world class standards.”

Leader of the independent review of value for money in the rail industry Sir Roy McNulty said:

“The railway as a whole faces significant challenges in terms of costs and affordability. Finding effective responses to these challenges will not be easy in such a large and complex industry.

“The study team has been encouraged by the ready co-operation we are receiving from many people within the industry, and from ORR and DfT. Our aim, with their help and support, is to chart a route to a sustainable future for rail in this country”.

Former transport secretary Lord Adonis announced a study into the value for money of the railway on 9 December 2009, jointly sponsored by the DfT and the Office of Rail Regulation. Today’s scoping study is the first published output. The final report is expected by the end of March 2011. Sir Roy McNulty was appointed by Adonis in February 2010 as chairman to lead a special Rail Value for Money Study.

McNulty was previously chairman of the UK Civil Aviation Authority (CAA), the specialist aviation regulator, a post he held for eight years. He was appointed as chairman of Advantage West Midlands in May 2009 and is also deputy chairman of the Board of the Olympic Delivery Authority.

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