Railway building costs risk harm to franchise value, report says

Spiralling costs of infrastructure projects on Britain's railways risk harming the value for money of future operating franchises, the National Audit Office (NAO) has warned.

An NAO report said that issuing contracts that protect operators from reduced revenue during major work - which happened during the redevelopment of London Bridge station - reduces returns to the taxpayer.

It said the Department for Transport (DfT) must judge how to maximise returns while keeping train services running during the construction of High Speed 2, whose first phase will run from London to Birmingham from 2026.

The cost of electrifying the Great Western line between London and South Wales could rise to £2.8 billion - despite an estimate of £1.6 billion being given last year - while there are concerns over the budget and delivery dates for the electrification of the Midland Mainline from Sheffield to Bedford and the TransPennine line between Manchester and York.

The NAO also warned that reduced competition and stretched resources among operators would reduce the value of franchise bids.

But the report praised the DfT for making progress "in rebuilding its reputation within the rail industry" in terms of awarding franchises following the cancellation of the InterCity West Coast competition in 2012 due to flaws in the bidding process.

It concluded that the decision to make direct awards to incumbent operators in the wake of the West Coast issue "was a sensible temporary measure".

Amyas Morse, head of the NAO, said: "Since the collapse of the West Coast Main Line franchise competition, the department has improved its management of rail franchising. Results of early franchise competitions indicate that returns to taxpayers could be higher than in the past.

"However, important risks remain. There is considerable uncertainty and volatility around the rail infrastructure improvement programme. And there are risks to effective competition should market interest decline. The department recognises these challenges and is taking steps to address them."

The Rail, Maritime and Transport Workers (RMT) union claimed the NAO was not critical enough about what it believes are the negative impacts of franchising.

RMT general secretary Mick Cash said: "This report bears no relation to the real experience of passengers who are paying the most expensive fares in Europe to travel on overcrowded, unreliable services.

"It also perpetuates the big lie of privatisation that rail franchising is making money for the taxpayer when the truth is the train operating companies are dependent on government subsidy overall and the passenger and taxpayer would be far better off if our railways were fully integrated under public ownership."

A DfT spokesman said: "We welcome the NAO's findings that we are delivering improvements for passengers, increasing value for money for taxpayers and improving the confidence of the rail industry in franchising.

"We are clear that franchising provides the best way to run rail services. Since privatisation, the rail industry has been transformed from an industry once in decline to a real success story, with passenger journeys more than doubling over the past 20 years.

"However we are not complacent. We listen to passengers and recognise there are challenges to overcome. We continue working hard to address them."