Rail was spared the full brunt of cuts in last year’s spending review because Network Rail’s grant mechanism is so complex that the Department for Transport could not reopen negotiations, a National Audit Office report has found.

In Reducing costs in the Department for Transport, the public spending watchdog said the department’s understanding of the relationship between cost and value “was weakest in rail”.

There was no analysis of the relative benefits and costs of reductions in the scope of rail franchises or increases in passenger rail fares, it said.

Network Rail’s £10.7bn grant up to 2014 was left untouched, but there was “limited evidence on the potential for efficiencies by Network Rail from 2014-15, and no analysis on the potential efficiency savings prior to this”.

The auditors noted: “A lack of transparency on Network Rail’s costs is consistent with our past reports on the department and the Office of Rail Regulation.”

Budget reductions in road maintenance and rail might not be financially sustainable, the NAO said.

Efficiency savings had been imposed on Network Rail from 2014-15 of £298m, but these could not be identified until negotiations on the next five-year rail financials settlement were concluded.

Cuts of £1.2bn to road maintenance included £223m of “unspecified efficiencies” and posed a risk of “a deterioration in road quality and higher long-term costs”, it said.

NAO head Amyas Morse said: “The Department for Transport was quick off the mark in preparing for the spending review. However, while the department had elements of a strategic vision, there was no real long-term plan for reducing costs sustainably.”

A DfT spokesperson said the government’s measures to “get the public finances under control” had enabled it to announce £2bn of additional investment in transport infrastructure in the autumn statement and to reduce rail fare rises, while any future rises would benefit public funds rather than the rail operators.

“Regulated rail fares will rise by inflation plus 1% in 2012, not inflation plus 3% as set out at the time of the spending review,” he said.

“We remain confident that any possible future fares change would yield its full anticipated value to the taxpayer and not to train company profits.”

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