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Realising the Potential of GB Rail � Final Independent Report of the Rail Value for Money Study Detailed Report May 2011 � Although this report was commissioned jointly by the Department for Transport (DfT) and the Office of Rail Regulation (ORR), the findings and recommendations are those of the authors and do not necessarily represent the views of the DfT and the ORR. While the DfT and the ORR have made all reasonable efforts to ensure the information in this document is accurate, the DfT and the ORR do not guarantee the accuracy, completeness or usefulness of that information; and cannot accept liability for any loss or damages of any kind resulting from reliance on the information or guidance this document contains. Department for Transport Office of Rail Regulation Great Minster House 1 Kemble Street 76 Marsham Street London London SW1P 4DR WC2B 4AN Telephone 0300 330 3000 Telephone: 020 7282 2000 Website www.dft.gov.uk/rail-value-for-money © Crown copyright 2011, except where otherwise stated Copyright in the typographical arrangement rests with the Crown. You may re-use this information (not including logos or third-party material) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government-licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or e-mail: [email protected]. Where we have identified any third-party copyright information you will need to obtain permission from the copyright holders concerned. ISBN 978 1 84864 124 2 Contents 1. Introduction to the Level Two Report 8 2. The Study background 9 2.1 Study remit 9 2.2 Key areas for the Study 9 2.3 Methodology 11 3. Cost and revenue structure of the GB rail industry 13 3.1 Rail industry outputs 13 3.2 Revenue 14 3.3 Overall cost structure 16 3.4 The call on the taxpayer 22 3.5 Conclusion 29 4. Benchmarking and cost savings 30 4.1 Benchmarking 30 4.2 Potential for cost savings 40 5. Area A – Industry objectives, strategy and outputs 46 5.1 Industry objectives 46 5.2 Strategy 53 5.3 Outputs 56 6. Area B – Leadership, planning and decision-making 70 6.1 Leadership 70 6.2 Planning 76 6.3 Decision-making 82 7. Area C – Structures, interfaces and incentives 88 7.1 Structures and interfaces 88 7.2 Incentives 105 8. Area D – Revenue 115 8.1 Fares 115 8.2 Property and development 124 8.3 Car park facilities 129 8.4 Ticket barriers/gating 131 8.5 Other revenue 133 9. Area E – Asset management 136 9.1 Asset management 136 9.2 Whole-system programme management 146 3 Realising the Potential of GB Rail: Final Independent Report of the Rail Value for Money Study – Main Report 10. Area F – Supply chain management 156 10.1 Supply chain management 156 10.2 Infrastructure UK and the GB rail industry 166 11. Area G – Safety, standards and innovation 169 11.1 Safety 169 11.2 Standards 177 11.3 Innovation 185 12. Area H – People 192 12.1 People 192 13. Freight 216 13.1 Introduction 216 13.2 Executive summary 216 13.3 The GB rail freight industry 216 13.4 The economic benefits of rail freight 217 13.5 The environmental benefits of rail freight 218 13.6 Rail freight and the Rail Value for Money Study 218 13.7 Financial performance of the rail freight sector 219 13.8 Specific issues affecting the rail freight industry 221 13.9 Rail freight’s contribution to value for money 224 13.10 Conclusion 226 14. Rolling stock 227 14.1 Description of studies and analysis 227 14.2 Evidence base 227 14.3 Key data 228 14.4 Barriers to efficiency 235 14.5 Principal issues 236 14.6 Recommendations for cost reduction 237 14.7 Potential for, and timings of, cost savings 238 14.8 Implementation plan 239 15. Infrastructure management 240 15.1 Infrastructure management and Network Rail 240 15.2 NR’s performance compared with other railways 240 15.3 Network Rail’s Transformation Programme 241 15.4 Challenges for CP4 and CP5 241 15.5 Assessing the likelihood of success 242 15.6 Findings 242 15.7 Overall conclusions 245 4 Contents 16. Information systems 246 16.1 Introduction 246 16.2 Executive summary 246 16.3 The GB rail industry’s information systems today 247 16.4 Potential solutions to the GB rail industry’s IS legacy 248 16.5 Using IS to achieve value for money 249 16.6 A wider vision 250 16.7 Capturing new opportunities 253 16.8 Conclusion 253 17. Capacity management and utilisation 254 17.1 Introduction 254 17.2 Summary of evidence from the Study’s benchmarking work 254 17.3 Comparison with European railways 255 17.4 How does the UK compare in terms of train utilisation? 256 17.5 Where is the GB rail network under pressure? 257 17.6 What parts of the network are under‑utilised and why? 258 17.7 Where are the key constraints on network capacity? 259 17.8 A whole‑system approach to capacity utilisation 259 17.9 Opportunities for improving value for money 260 18. Other operational issues 262 18.1 Introduction 262 18.2 Possessions management and the seven‑day railway 262 18.3 Performance management and the National Task Force 264 18.4 Control and traffic management 266 18.5 Information systems and the customer 269 18.6 Summary 270 19. The lower-cost regional railway 271 19.1 Introduction 271 19.2 Changing the concept of the regional railway 272 19.3 The technical characteristics of the regional railway 272 19.4 The operating characteristics of the regional railway 275 19.5 Learning from experience 276 19.6 Additional issues for implementation 277 19.7 Potential for cost reduction 278 19.8 Recommendations 278 20. Competition and contestability 280 20.1 Overview of competition in the GB rail sector 280 20.2 On‑rail competition in the GB rail sector 280 20.3 Increasing competition and contestability 282 5 Realising the Potential of GB Rail: Final Independent Report of the Rail Value for Money Study – Main Report 21. Ownership change 283 21.1 Background 283 21.2 The Study’s approach 283 21.3 Private investment 283 21.4 Renationalisation 284 22. Infrastructure asset ownership 287 22.1 Introduction 287 22.2 Ease of transition 287 22.3 Increased contestability 287 22.4 Public interest 289 22.5 Conclusions 289 23. Financial transparency 290 23.1 Overview 290 23.2 Proposed reforms to improve financial transparency 291 24. Private investment 292 24.1 Overview of private investment in the rail industry 292 24.2 Unsupported debt 293 24.3 Equity risk capital 293 24.4 Conclusions on private investment in Network Rail 295 25. Legal background 296 25.1 Introduction 296 25.2 Key issues to be considered 296 26. Recommendations for regulation 300 26.1 The main forms of regulation in the railway 300 26.2 Improving regulation 301 26.3 The capability of the ORR 303 26.4 The capability of the DfT 303 27. Issues relating to value for money 304 27.1 Description of studies and analysis 304 27.2 Evidence base 304 27.3 Background information and key data 304 27.4 Barriers to efficiency 305 27.5 Principal issues 306 27.6 Recommendations 307 27.7 Potential for, and timings of, cost savings 308 27.8 Implementation plan 308 6 Contents 28. Approach to implementation 309 28.1 Introduction – the management of change 309 28.2 A structure for change 309 28.3 The pace of change 310 28.4 Control Periods and franchise renewals 311 28.5 The phasing of change 312 28.6 The governance of change 314 28.7 Summary 314 29. Glossary 315 57 1. Introduction to the Level Two Report The Rail Value for Money Study has been sponsored jointly by the Department for Transport (DfT) and the Office of Rail Regulation (ORR). This report responds to the Terms of Reference set out by Lord Adonis, then Secretary of State for Transport, in February 2010. Following the May 2010 General Election, the Study’s general approach was endorsed by the new Secretary of State, the Rt Hon. Philip Hammond MP. The Study team is most grateful to him for his active engagement in, and support for, its work. This final report from the Study is structured as follows: • Summary, which contains: − Foreword; − an Executive Summary; and − the Level One report that sets out the Study’s principal findings, recommendations and assessment of the potential for reductions in GB rail costs • This Level Two document, the Detailed Report, which contains reports from each of the workstreams within the Study, including detailed analysis of data, issues and barriers, together with more detailed recommendations and analysis of potential cost savings. The Level Two report is available online at www.dft.gov.uk/rail-value-for-money. Shortly after publication of the above two documents, the Study team will make available on-line the consultants’ reports that the team has used in developing its analysis and recommendations.. The Study team wishes to thank its sponsors, the DfT and the ORR, for their help and support throughout, and is extremely appreciative of the input and advice from the many people throughout the industry who have participated in stakeholder groups, in workshops, or in other ways.
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