Posted 14th March 2012 | 8 Comments

'Fragmented' rail industry under fire from MPs

NETWORK RAIL has come under fire from a Parliamentary Committee which says the hybrid status of the organisation makes it unaccountable, even though the Government has the final responsibility for its £25 billion debt.

The criticisms, from the House of Commons Public Accounts Committee, have come at the same time as Network Rail chief executive David Higgins was telling another Parliamentary committee that the industry is fragmented, and lacks leadership.

The MPs on the Public Accounts Committee have been examining the budgets and spending of the Department for Transport, and their report is particularly critical of the way that Network Rail is funded and held to account.

It said: 'Network Rail spends billions of pounds of public money each year. Its debt of over £25 billion is underwritten by the taxpayer and international accounting conventions show that it should be considered as part of the public sector.

'Yet the Department continues to hide behind the Office for National Statistics classification of Network Rail as a private company which keeps Network Rail's debt off the public balance sheet and its spending from direct NAO scrutiny.

'We also note that an additional £950 million borrowing through Network Rail formed part of the Government's plans in the Autumn Statement, further undermining the Department's argument that it is an "essentially private sector" company'.

The PAC also said that the DfT is at its 'weakest' when it is dealing with rail finances, and that despite the recommendations of last year's report on railway 'value for money' by Sir Roy McNulty, 'while contracts across Government were renegotiated as part of spending reduction plans, Network Rail's funding settlement to 2013-14 was left unchanged.

'The Department should put in place new oversight arrangements with the powers to interrogate information on Network Rail's efficiency and to make changes to its funding at short notice'.

Margaret Hodge, who chairs the Committee, added: "Rail budgets aren’t being reduced as much as other areas, yet passengers still face high fares. The Department needs to understand why the cost of rail travel is so high, and understand better what scope there is for further efficiencies.

"It is unacceptable that Network Rail is still not fully transparent or accountable to Parliament or the taxpayer. The Department hands Network Rail over £3 billion each year and underwrites debt of over £25 billion and yet maintains the fiction that this is a private sector company. The National Audit Office must be allowed full audit access as quickly as possible to this organisation which is essentially kept afloat through public funds."

In response to the PAC, a Network Rail spokesman said the company was already heavily scrutinised by the Office of Rail Regulation, but that it was working to increase transparency still further.

Meanwhile, as the PAC was publishing its findings, Network Rail chief executive David Higgins was telling another Commons Committee that the rail business is 'tough', 'fragmented' and 'lacking leadership'.

He told the Transport Select Committee that there was a 'huge challenge' in coping with increasing demand, warning that 'in the next ten years we have this capacity crunch'.

Sir David, who took over from Iain Coucher just over a year ago, has revealed that this year's executive bonuses are to be diverted to the level crossings safety budget.

The company has also said that its chairman Rick Haythornthwaite is set to be replaced by Professor Richard Parry-Jones, that it intends to appoint a non-executive public interest director to its board, and announced 'a series of changes to its membership structure designed to help its members hold the board to account'.

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • Joel Kosminsky, London

    The Government chooses to do nothing over fragmentation. McNulty misread it and missed the target completely. Fragmentation generates eye-watering profits from taxpayers pockets with revenue guarantees, supply-side bias and service cuts while passenger numbers grow. They'll be charging us to use train toilets next, taking cues from RyanAir and EasyJet who are expert in milking us from years of practice.

  • Jamie, Farnborough

    Bring back British Rail.

    I am 18 and even I can see that re-nationalisation is clearly the best solution and would be a sure-fire election winner for whichever party proposed it. If they're going to have privatisation, they should at least have proper competition (i.e. multiple TOC's vying for business on the same route) rather than whole regions being monopolised by big companies.

  • Ian Hughes, Reading

    I need to make a slight correction to Melvyn Windebanks assertion that Network Rail is not a "not for profit organisation". It does have to run on a profitable basis. However, it is a "not for dividend " organisation in that it does not return money to shareholders, because there aren't any. That cash is earmarked for further railway re-investment.

  • Bob Johnson, Chester

    British Rail delivered much, much more for much less ££ It did however have far fewer Managers, Directors, Executives and did not employ an army of jobsworths doing nothing except harrassing hard working railway staff. Cut the top down and it will save millions.

  • Melvyn Windebank, Canvey Island, Essex

    The West Coast scheme was done under Railtrack and not Network Rail and we all know what a disaster Railtrack was!!!

    Network Rail was left to clean up Railtrack's mess and did a very good job at returning the railways to how they were when BR was abolished by the Major government ahead of a certain election defeat.

    Network Rail is a not for profit organisation and as such is difficult for many politicians to understand how this system works!!

    As for deficits the reality is these are loans which have to be paid back using money raised via fare revenue and other sources like property development.

    The best solution would be to remove the money-go-round that privitisation has introduced but to do this the Conservatives would have to admit to the mess they created when they treated BR like Humpty Dumpty!!

    Odd thing is its not like we have a privatised railway like in the days of the group of 4 instead we have private companies making a profit while receiving subsides from the taxpayer.

    Why not put inter city back together as a single unit covering the whole country and then sell it off as a going concern with certain golden restrictions if the owner wanted to sell the business on?

    Anyway why not also have the Highways Agency on the same footing as Network Rail with a need to raise revenue to fund Motorways. Just like fares fund railways?

  • jack99, oxford

    The Government had an efficient railway that cost 1 Billion per Year - it was called British Rail
    John Major chose to privatise British rail and its been a fragmmented high cost railway ever since as the Government in 1992 did not listen to Sir Bob Reid ( both Sir Bobs ) and their cost effective privatisation but instead allowed Sir Christopher Foster ( Accountant ) , Bob Horton ( Railtrack disaster ) the Bus industry to devise the unwieldy structure of seperate Infrastructure and Operators that you have now which costs 3x what BR cost to run.
    If BR had the funding of the Private Operators / Network rail the money would go much furthur than it does now.

  • Philip Russell, Carlisle

    This report confirms i suppose what many thought anyway, that the rail industry in recent years has just been a panacea for a certain number of companies and organisations to get a garunteed government income to operate for a specified time regardless of efficency

  • Lee, Manchester

    Does any of this really surprise anyone anymore? Surely this is yet another indication as to why infrastructure projects such as the WCML upgrade end up running over budget. I know the cost of running and maintaining a railway is not cheap but ours seem to be the vast Government endorsed financial black-hole. It would be interesting to see if the American military and intelligence agencies can cover up their spending to the same degree as Network Rail can.