Advanced Search
UK Railway told to put brakes on costs by Govt.


Railway industry to be told to put the brakes on its 'unsustainable' costs

• Railways report will warn £5bn annual funding could be at risk
• Government committed to cutting costs rather than rail services

from the Guardian.co.uk    http://www.guardian.co.uk/business/2010/jun/13/railway-funding-network-rail

Rail worker train tracks at Clapham Junction
Office of Rail Regulation study found Network Rail was 30% more expensive than German and French counterparts. Photograph: Luke Macgregor/Reuters

The rail industry will be told it needs radical changes to its "unsustainable" cost structure when the government publishes the terms of an in-depth study into the sector's strained finances this week.

The former chairman of the Civil Aviation Authority, Sir Roy McNulty, is leading a review of the rail industry's costs and is expected to outline the structure of the report this week. A draft version of the outline statement warned government funding of £5bn a year could be untenable. "There is a view that the present costs of the industry are unsustainable," said the document.

The McNulty study is expected to analyse eight areas: overall strategy, the industry's leadership structure, incentives, fares, asset management, supply chain management, innovation and safety, and people.

It is understood the outline statement highlights an Office of Rail Regulation study which shows Network Rail, the owner of Britain's tracks and stations, is 30% more expensive than its counterparts in France and Germany. However, McNulty said: "Improving Network Rail efficiency on its own will not address the challenges facing the industry." 

Nerwork Rail said the company, which receives about £4bn per year in state funding, was alread committed to cutting it's base cost by nearly one quarter over the next five years. It said: "We will be heavily involved in working with Sir Roy and the industry to identify other areas of efficiency."

This month, train operators raised the taboo subjects of fewer and shorter trains, as well as higher-than-expected fare increases, in a meeting with transport secretary, Philip Hammond, to discuss industry funding. However, Hammond is believed to favour tackling Network Rail's costs rather than taking carriages out of service.

The Association of Train Operating Companies said the review will give franchise owners an opportunity to take a bigger role in the industry. It added: "The view of train companies is that freeing them up to bring more commercial nous into the railways has the potential to save hundreds of millions of pounds every year."

Passengers spend around £6bn on services – 75% higher than in 1997. However, the government's financial concerns are also causing frustration among train operators bidding for the East Anglia and c2c franchises – two of the most lucrative commuter contracts in the country. Bidders have spent an estimated £1m each on their bids but, according to one industry source, the process has stalled and franchise owners are being forced to retain expensive but idle bidding teams.

The source said it was a waste of money to delay the process while considering reforms to the franchise model: "In the short term, there are cost efficiencies to be gained in carriage procurement, station management and revenue growth. There is more gain in that than delaying the competition so that the franchise system can be completely reformed to incorporate all the changes that the Tories want."

The National Audit Office issued a guarded warning over the state of the rail industry this month when it published a report that raises questions about the institutional backbone of the rail industry. In an investigation into a government rolling stock order, it queried the competence of the Department for Transport's procurement procedures, the ability of Network Rail to meet efficiency targets and the ability of the Office of Rail Regulation to monitor its performance effectively.

Some rail industry figures, including Network Rail executives, are concerned that reopening Network Rail's five-year plan in an interim review will distract management from achieving the cost-cutting targets and force the government to increase its funding.

Delicious Digg Facebook Fark MySpace
Views: 1693 views    Report Inappropriate Content
All Articles