Rail in England: Where the money goes – National Audit Office sets out the facts

The National Audit Office (NAO) has published a financial overview of the rail system in England, setting out how much it costs, how it is paid for and some of the challenges ahead.

The clear and easy-to-understand report is packed with graphs and charts, aimed at demystifying the subject.

Building on information published by the Office of Rail and Road, Network Rail and the audited accounts, the overview examines income and expenditure from the five financial years ending in March 2020.

For example, it shows a breakdown of the £17.4 billion total expenditure of the rail system in England in 2019-20. This included:

  • £9.5 billion spent on operating rail passenger services;
  • £7.1 billion spent on operating rail network infrastructure; and
  • £0.9 billion spent on operating freight services and High Speed 1 (HS1).2

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. These proportions changed with the onset of the COVID-19 pandemic in March 2020.

Says the NAO: “The arrangements for delivering rail services in England are complex, and distributed across the public and private sector. This makes it difficult for Parliament and taxpayers to understand the overall financial position, to which the taxpayer is ultimately exposed, and the impact of government’s choices.”

The NAO’s financial overview aims to enhance clarity at a moment of significant industry change.

The anticipated recommendations of the Williams Rail Review – whose publication has been delayed from Autumn 2020 to May 2021 – are expected to address long-standing issues within the system and will be published in a context of heightened uncertainty about the future demand for rail.

There are a number of significant challenges for government to address, including managing costs to taxpayers and rail’s contribution to the government’s net zero target for carbon emissions.

The Overview builds on existing data published by key rail industry organisations, including the cross-industry data available from the Office of Rail and Road (ORR), and Network Rail.

The National Audit Office (NAO) report Department for Transport Departmental Overview 2019-20 set out the financial challenges faced by the privatised passenger rail franchising system in 2020. The government’s net income from train operators had fallen, and in 2019-20 the position became one of net government subsidy. 

The Williams Rail Review is an independent review established by the government in September 2018 to look at the structure of the whole rail industry and the way passenger rail services are delivered. The review was set up following the May 2018 timetable disruption and the collapse of the Virgin Trains East Coast franchise. 

The House of Commons Committee of Public Accounts highlighted its concerns about the fragmented nature of responsibilities in rail, cost overruns, project delays and disruption in its February 2019 report Rail management and timetabling

The Department for Transport introduced emergency agreements to support train operators as income from passengers fell dramatically as a result of the COVID-19 pandemic. It is currently absorbing all revenues, costs and risks of the rail franchising system while paying operators a fixed management fee for operating services. 

About the NAO

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. It helps Parliament hold government to account and it use its insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The NAO audits the financial accounts of departments and other public bodies. It also examines and report on the value for money of how public money has been spent.

In 2019, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £1.1 billion.

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