In the periodic review 2013 (PR13) we have established and drawn on a much deeper and robust base of studies, with newer evidence and analysis, than was available to Sir Roy McNulty's value for money study or at the time of our advice to ministers. Our review sets a strong efficiency challenge and our plans for enhancements efficiency develop this challenge further.
Sir Roy McNulty's rail value for money study took our analysis of Network Rail's costs and looked more broadly at the efficiency of the whole rail industry. His report highlighted that whole-industry costs are 30 per cent higher than comparable railways elsewhere in Europe. This is reflected in the high levels of fares and the need for continuing taxpayer support.
Our assumptions on how much money Network Rail needs to spend to deliver its outputs and other commitments were fundamental to our decisions on the company's revenue requirements:
- We have undertaken a thorough review of Network Rail‟s plans across all areas of expenditure to ensure that our assessment is challenging but achievable.
- We have reviewed cross-cutting issues such as the management of inflation, which potentially apply to all areas of expenditure, and issues specific to certain types of expenditure.
- We have set Network Rail a challenge of achieving 19.4% efficiency savings on its support, operations, maintenance and renewals expenditure in CP5.
- Our assumptions for maintenance and renewals expenditure include both volumes of work and the unit cost of doing this work today.
- We consider that Network Rail has the capability to deliver this challenge and our assessment should incentivise Network Rail to reduce its expenditure in a safe and sustainable way. Main changes since ourIn support of its recommendations, the RVfM study identified a number of key areas where savings could be realised to deliver improved value for money. The majority of these savings were assumed to result from efficiencies in train operations, rolling stock companies and infrastructure management.
Our final determination forecast of total expenditure on traction electricity, industry costs and rates in CP5 is £3,056m. This represents 8% of Network Rail's total expenditure.