PAC calls for reform of 'cosy' rail regulator

12 Jul 11
MPs have called for the rail regulator to be reformed, saying that without more 'teeth' it is unlikely to be able to put effective pressure on the industry to reduce costs.
By Richard Johnstone | 12 July 2011

MPs have called for the rail regulator to be reformed, saying that without more ‘teeth’ it is unlikely to be able to put effective pressure on the industry to reduce costs.

In a report issued today, the Public Accounts Committee says the Office of Rail Regulation is ‘too cosy’ with Network Rail, the owner and operator of the railways, and that its sanctions for under-performance, including fines, are of questionable usefulness.

In addition, the ORR has not enforced a link between performance and bonus payments to Network Rail’s senior managers, leading to bonuses being paid despite the company failing to reach its targets.

Bonuses to senior staff at Network Rail – which received £3.7bn in direct taxpayer support in 2009/10 – have been controversial since former chief executive Iain Coucher accepted more than £600,000 in 2010 despite government calls for pay restraint.

The committee says that the ‘high level of performance pay and bonuses enjoyed by previous rail executives is simply unacceptable’.

The MPs call for the Department for Transport to review the regulator’s powers, while the ORR itself should put in place a more robust performance management system to monitor efficiency savings.

To make savings, Network Rail plans to reduce spending by about £1bn on renewing old tracks and replacing signalling, but the committee concludes that there is ‘considerable uncertainty over whether deferring this work is genuinely efficient or simply delaying costs for the future’.

PAC chair Margaret Hodge said the ORR must obtain evidence that putting off maintenance is ‘efficient, sustainable and safe’.

She added:‘We doubt whether the Office of Rail Regulation can put effective pressure on Network Rail to improve its performance. Fines simply reduce the amount of investment in the railways. Britain needs a regulator with teeth, who can ensure proper value for money for both the taxpayer and fare-payer.

The committee’s report, Office of Rail Regulation: regulating Network Rail's efficiency, follows the McNultyreview into the costs of the rail industry published in May. This found that between £700m and £1bn could be saved annually by 2019 through greater efficiency across the industry, including train operators as well as Network Rail.

Responding to the report, ORR chair Anna Walker said the regulator had been successful in challenging Network Rail to find significant efficiency savings of £15bn over a ten-year period.

She added: ‘This is in sharp contrast to other parts of the rail industry that we do not regulate where costs have remained far too high. We regulate Network Rail using a wide range of levers to drive up performance, efficiency and safety. Fines are rarely used and only as a last resort.

‘There is a 40% efficiency gap between Network Rail and its most efficient European counterparts. 21% of this will have been cut by 2014, and we are currently consulting on a regulatory regime which aims to close the rest of this shortfall.’

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