"The gap between Network Rail’s
efficiency, as a monopoly provider, and that of comparative
European rail infrastructure managers has been effectively
identified by the Office of Rail Regulation. It is so wide that it
has served up to now to drive forward improvements in efficiency by
Network Rail. However, further progress will depend on the
Regulator developing significantly better information on Network
Rail’s costs."
Amyas Morse, head of the National Audit
Office, 1 April 2011
Limitations in Network Rail’s information on its own costs are
hampering the ability of the Office of Rail Regulation to judge the
genuineness of the efficiency savings reported by Network Rail. The
Regulator has also determined that substantial scope remains for
Network Rail to improve its efficiency.
Today’s report by the National Audit Office acknowledges that
the Regulator has significantly developed the methods it uses to
judge efficiency. Its targets have demanded substantial
improvements from Network Rail. According to the Regulator’s
assessments, Network Rail has come close to meeting these targets,
by making efficiency savings of 27 per cent in the five years to
2008-09, equivalent to £1.8 billion in that final year. This was
below the Regulator’s target of 31 per cent, although this was
still an achievement when compared to savings in other regulated
industries.
The Regulator has determined that substantial scope remains for
Network Rail to improve its efficiency, estimating that maintenance
and renewal activities were 34 per cent to 40 per cent less
efficient than the most efficient European rail infrastructure
managers in 2008. The Regulator estimates that Network Rail can
achieve further efficiency savings of 21 per cent in the five years
to March 2014 - equivalent to spending £940 million less in
2013-14 than the forecast for that year without efficiency
gains.
However, there are continuing limitations in the robustness and
coverage of Network Rail’s unit cost information. These need to be
addressed promptly to improve confidence that future efficiency
targets accurately reflect Network Rail’s potential for sustainable
savings, as the efficiency gap narrows, and that reported savings
correctly reflect efficiency gains actually achieved.
Network Rail is financed by debt guaranteed by the Government
and holds a national monopoly over the rail network. This means
that the Regulator cannot rely on many of the incentives that
encourage efficiency savings in other regulated industries. Network
Rail’s main incentives to deliver efficiencies are reputational and
a component of Directors’ remuneration. The Regulator can specify
objectives for Network Rail’s management incentive plan, but has in
the past expressed surprise at the levels of executive bonuses.
Publication details:
HC: 828, 2010-2011
ISBN: 9780102969658