Assessing the efficient cost of sustaining Britain’s rail network perspectives based on zonal comparisons

The objective of this paper is to inform the debate on how efficiency targets for Network Rail (formerly Railtrack) should be set during the 2002/03 Interim Review and beyond. Given the problems experienced during the 2000 Periodic Review, which focused on external benchmarks,we propose an internal benchmarking approach, drawing on data for seven geographical zones within Railtrack. Our approach mirrors the yardstick competition method used in other UK regulated industries. Two efficiency measurement techniques are applied to this data. Our results suggest that Railtrack (as a whole) delivered substantial real unit cost reductions in the early years after privatisation, although these savings were largely offset by the post-Hatfield cost increases. However, looking forward, zonal efficiency differences suggest that the company could make significant savings in future years by applying best practice consistently across the network.