House of Commons Committee of Public Accounts Overview of the English rail system Tenth Report of Session 2021–22 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 1 July 2021 HC 170 Published on 7 July 2021 by authority of the House of Commons The Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine “the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit” (Standing Order No. 148). Current membership Meg Hillier MP (Labour (Co-op), Hackney South and Shoreditch) (Chair) Mr Gareth Bacon MP (Conservative, Orpington) Kemi Badenoch MP (Conservative, Saffron Walden) Shaun Bailey MP (Conservative, West Bromwich West) Olivia Blake MP (Labour, Sheffield, Hallam) Dan Carden MP (Labour, Liverpool, Walton) Sir Geoffrey Clifton-Brown MP (Conservative, The Cotswolds) Mr Mark Francois MP (Conservative, Rayleigh and Wickford) Barry Gardiner MP (Labour, Brent North) Peter Grant MP (Scottish National Party, Glenrothes) Antony Higginbotham MP (Conservative, Burnley) Mr Richard Holden MP (Conservative, North West Durham) Craig Mackinlay MP (Conservative, Thanet) Sarah Olney MP (Liberal Democrat, Richmond Park) Nick Smith MP (Labour, Blaenau Gwent) James Wild MP (Conservative, North West Norfolk) Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No. 148. These are available on the Internet via www.parliament.uk. 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Overview of the English rail system 1 Contents Summary 3 Introduction 4 Conclusions and recommendations 5 1 Rail system recovery and reform 8 Encouraging passengers back to the railway 8 Planned rail system reform 10 Oversight of the rail system 11 2 Financial and environmental sustainability 12 Interim National Rail contracts for passenger service delivery 12 Rail network electrification 13 Network Rail’s efficiencies 14 Formal minutes 16 Witnesses 17 Published written evidence 17 List of Reports from the Committee during the current Parliament 18 Overview of the English rail system 3 Summary The rail system in England has suffered from a lack of strategic direction and accountability for many years. The delivery of services has not been focused sufficiently on the needs of passengers, and the system has struggled to improve service reliability, quality and flexibility. The rail system has become increasingly costly for the taxpayer. In 2019–20, the net cost of the system to the taxpayer was £5.1 billion; a 99.7% increase in real terms from 2015–16 to 2019–20. Since March 2020, an estimated £8.5 billion of additional government financial support has also been provided to the system in response to the COVID-19 pandemic. Despite the significant cost to the taxpayer, the pandemic presents a highly unusual operating environment, from which lessons should be learned and implemented to improve the system in future. The Government needs to make tough choices and determine priorities about the future of rail. Government intends to move from the previous failed franchise system to new arrangements expected to result from the Williams-Shapps Plan for Rail (the Rail White Paper). At the same time, government must address the impact of COVID-19 on the system and put in place measures to ensure a net zero railway in accordance with its previous commitments. The Department and Network Rail must ensure that rail delivers better services for passengers in a way that meets new travel demands. At the same time the high-cost fixed assets required to run these services need to be maintained, while keeping ticket prices affordable to encourage people to travel by rail. While the Department is aware of the need for improvement across a range of areas we are concerned that the Department has neither the necessary urgency nor appreciates the scale of the challenge ahead. Now is the time to make radical, effective reform in the rail system and aspirations and intentions need to be turned into concrete actions that deliver meaningful change. 4 Overview of the English rail system Introduction The rail system in England involves public bodies (including Network Rail), passenger operators under government contract, and private sector bodies. It is regulated by the Office of Rail and Road. The Department for Transport (the Department) is responsible for setting the strategic direction for the rail system in England. The arrangements between all those involved in delivering rail services involve complex cash flows and accountabilities. The total expenditure of the rail system in 2019–20 was £17.4 billion, made up of £9.5 billion spent on operating rail passenger services, £7.1 billion spent on operating infrastructure and £0.9 billion spent on operating freight services and High Speed 1 (figures do not sum due to rounding). In 2019–20, total rail sector income was £17.1 billion, of which £5.1 billion was government funding. The remaining £12.0 billion was earned income, the majority (80%) of which was earned through passenger fares. The disruption to national rail services following the May 2018 timetable change, and the collapse of the East Coast Rail Franchise in the same month, led the Government to announce the Williams review to examine substantial concerns from across the industry around the rail system’s structural organisation and the delivery of rail services. Those concerns included long-standing issues that have been prevalent in the rail system including: poor passenger service performance, reliability and value for money; fragmentation between bodies in the system and the lack of clear accountability; concerns around cost pressures and financial sustainability; and the ability of the system to respond flexibly to future challenges and opportunities. To add to these challenges, passenger demand has not continued to increase in the way anticipated by the Department and train operators (plateauing at around 1.35 billion journeys per year since 2015–16). This has contributed to problems with the financial sustainability of those franchises whose finances are dependent on continuing to maintain revenues at levels previously anticipated. In addition, during the COVID-19 pandemic the government told the public to stay at home if they could, and without passenger fare income, government stepped in to pay rail operators to keep services running. In doing so, it took on all risks associated with running the railway. The Department now faces an extremely challenging and uncertain environment in which to implement its proposed reforms. Overview of the English rail system 5 Conclusions and recommendations 1. The Department lacks a convincing and timely plan for encouraging passengers back to the railway as part of COVID-19 recovery, and risks an increase in car use. The Department and Network Rail have some plans to encourage people back to rail travel, including increasing the capacity of services and the information available to passengers. However, these plans do not reflect the urgency required to avoid an increase in car use as people begin to travel again, which would undermine the decarbonisation of transport required to meet net zero commitments. Even before the pandemic, passenger demand had plateaued, reflecting a change in travel patterns. Long-standing barriers to rail travel remain unaddressed by the Department. For example, fare reform to reduce the complexity and cost of rail travel and encourage use is long overdue. In addition, it remains unclear how the Department will better integrate rail travel with other modes of public transport, which would improve utility of the whole public transport network and incentivise use. The Department’s own data shows that people are returning to cars faster than to other modes of transport. Without targeted and timely intervention, the opportunity to reinvigorate use of public transport and prevent a car-led recovery will be missed. Recommendation: The Department should write to the Committee by December setting out the actions it is taking to encourage passengers back to the railway. This should include: • a plan for rail fare reform and flexible ticketing post-pandemic; • the steps it is taking to integrate across public transport to provide a joined- up transport system for passengers; and • how Network Rail is actively managing rail timetables and services to respond to emerging demand patterns. 2. In recent years, we have identified serious failings in the rail system, and the Department must now overcome significant long-standing issues to bring about complex reform. We have previously reported on the problems inherent in the rail system, such as: poor performance and reliability of the network; the lack of accountability and Departmental oversight and the Department’s poor management of franchises. The COVID-19 pandemic has brought additional challenges, not least the collapse in passenger demand and associated revenues, and significant financial cost to government and the taxpayer. The Department acknowledges that the rail system faces a complex and deep-rooted set of issues and that collaboration between all bodies in the system will be required to make changes across the sector.