The Department has reported VFM cash releasing savings totalling £892 million in 2008-09. The reported saving was made up of six separate initiatives. We have rated £585 million of the savings as Green or Amber; but have significant concerns over £307 million (34 per cent) of the claim to date.
We concluded that elements of the Department for Transport's governance arrangements for the programme are good but that the Department's lack of control over and visibility of third party grant recipients reduces its ability to gain or provide assurance on savings reported in these areas. Our areas of concern with the savings reported mainly relate to the calculation of baselines, rather than the governance arrangements.
The majority of the reported savings (80 per cent) relate to the two rail workstreams in the Department's programme. These were derived from a decrease in support for passenger rail services (the net subsidy paid to Train Operating Companies) and from a reduction in the grant for Network Rail. We consider the starting baseline for Network Rail should be revised to reflect actual 2007-08 expenditure. This would significantly reduce the saving made in 2008-09. We therefore rated the element that we consider represents an overstatement Red with the remaining element rated as Green.
We rated £80 million of the Support for Passenger Rail Services saving of £280 million as Red as we consider that the starting baseline against which the value of the saving was measured should be altered downwards to reflect actual spend for 2007-08, after allowing for early VFM action. This would result in a lower saving being reported in 2008-09. We also concluded that there is a risk that large elements of the saving are not sustainable in all CSR07 years owing to the impact of the economic downturn on passenger revenues. The Department recognises that there is a risk to sustainability, although it has pointed out that this did not fully materialise until after the annual report figures were finalised.