COMMONS

Public Accounts Committee reports on reducing costs in the Department for Transport

13 March 2012

The Commons Public Accounts Committee publishes its 71st Report of the Session, on the basis of evidence from the Department for Transport.

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"The Department for Transport prepared early for the 2010 Spending Review, identifying areas for budget reductions based on good analysis. But for road users, railway passengers and taxpayers, there are many questions which remain unanswered.

The Department doesn’t fully understand what impact its cuts to road maintenance will have on the state of the UK’s roads. My Committee is concerned that short-term budget cutting could prove counter-productive, costing more in the long-term as a result of increased vehicle damage and the higher cost of repairing the more severe road damage.

Another area which concerns us is rail spending. Rail budgets aren’t being reduced as much as other areas, yet passengers still face high fares. The Department needs to understand why the cost of rail travel is so high, and understand better what scope there is for further efficiencies.

It is unacceptable that Network Rail is still not fully transparent or accountable to Parliament or the taxpayer. The Department hands Network Rail over £3 billion each year and underwrites debt of over £25 billion and yet maintains the fiction that this is a private sector company. The National Audit Office must be allowed full audit access as quickly as possible to this organisation which is essentially kept afloat through public funds."

Margaret Hodge was speaking as the Committee published its 71st Report of this Session which, based on evidence from the Department for Transport (the Department), examined its plans to reduce costs over the Spending Review period to 2014-15.

As part of the 2010 Spending Review the government announced a significant reduction in the budget of the Department, with spending due to be 15% lower by 2014-15, in real terms, than the Department's £12.8 billion budget in 2010-11. While some of the reductions in capital spending were reversed in the 2011 Autumn Statement the Department still has significant expenditure reductions to manage including their own administrative budget being cut by a third. We commend the Department for preparing for the Spending Review early and making a systematic assessment of budget reductions, supported by generally good analysis, but we still have concerns that the Department needs to address.

Around 60% of the Department's expenditure is capital investment requiring long term commitments. We were therefore disappointed that the Department did not have in place a clear framework setting out its long-term strategy at the time of the Spending Review, which would have allowed it to make better informed decisions about spending reductions. The Department is now developing a longer-term approach to transport planning and should make its strategic objectives clear.

The Department spends two-thirds of its budget through third party organisations such as Network Rail and Transport for London. While the Department has improved its information and assurance over some third party spending, we remain concerned at the lack of proper accountability and transparency for Network Rail. Passenger rail is the Department’s largest single area of spend with considerable scope for greater efficiencies. Yet rail budgets are reducing by less than other areas and the factors driving the high cost of rail travel are poorly understood.

It is unacceptable that Network Rail’s costs are still not subject to direct National Audit Office and Parliamentary scrutiny. The Department continues to view Network Rail as an "essentially private sector" company despite giving it over £3 billion a year in funding and underwriting its debt of over £25 billion. The Department could not offer any convincing evidence as to what characteristics Network Rail shares with a private company.

For roads, the Department does not have a full understanding of the likely impact of budget reductions, particularly on road maintenance. There is a risk that reductions in maintenance will be counterproductive – resulting in higher costs in the long run and increasing the risk of claims for vehicle damage. The Department also needs to develop better contingency plans for how it will deal with threats to its planned budget reductions – for example if some of its planned efficiency savings do not deliver or if inflation is higher than forecast.

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