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Focus On Series

Area Summary: Regulating Efficiency

Relevant Audits

Audit Office

Report Title
(click on title to access summary)

Publication date


Regulating Network Rail’s Efficiency

April 2011

Example of audit objectives

  • To determine whether there are strong incentives on the regulated company to achieve efficient and sustainable levels of cost. (view report summary)
  • To determine whether there is robust information for the Regulator to judge what level of cost is efficient and sustainable, and how the regulated company's performance compares with that efficient cost. (view report summary)

Example of audit criteria

  • Not available.

Example of evidence gathering and analysis techniques

  • Quantitative analysis of Network Rail’s costs and efficiency – Analysis of the Regulator’s data on Network Rail’s costs and efficiency. (view report summary)
  • Quantitative and qualitative review of the Regulator’s benchmarks – Review of the data and assumptions the Regulator used to benchmark Network Rail against international comparators. (view report summary)
  • Stakeholder consultation – Collected views from over 20 organisations involved in the rail industry. (view report summary)
  • Interviews with other regulators – Interviewed economic regulators of other sectors. (view report summary)

Example of findings

  • The Regulator has contributed to improving Network Rail’s efficiency, but reports that a substantial efficiency gap remains. (view report summary)
  • Incentives for Network Rail to find efficiency savings are weaker than those facing other regulated companies. (view report summary)
  • The Regulator has performed innovative benchmarking analysis but there are gaps in its information on Network Rail’s own unit costs. (view report summary)
  • The Regulator has identified an efficiency gap but this is not yet fully explained. (view report summary)

Example of recommendations

  • The Regulator should require Network Rail to improve the quality, coverage and geographic breakdown of its unit cost and work volume information to the point where it can be a more valuable component of both Network Rail’s own plans and internal benchmarking, and the Regulator’s efficiency judgments in the next Periodic Review. (view report summary)
  • The Regulator should work with Network Rail to understand better the reasons for the evident efficiency gap relative to the most efficient European operators, and the opportunities to bridge it. It should also work with other regulators and Infrastructure UK to understand the reasons for the generally high level of UK infrastructure costs, and to address any aspects of regulatory frameworks that may contribute to it. (view report summary)