The review, which will report next year, will be chaired by former British Airways chief executive Keith Williams and be supported by an independent expert panel. It will consider all parts of the UK rail industry including structure, accountability and value for money for passengers and taxpayers, the current franchising system and the integration between train companies and the infrastructure on which they run.
The government intends to produce a white paper on rail reform once the review panel has published its recommendations. It then intends to begin implementing agreed reforms from 2020.
Passenger journeys have more than doubled since British Rail was privatised in 1994, from 735 million in 1994-95 to 1.73 billion in 2016-17, but the government said that the industry has not kept pace with this growth. The review will operate separately to Professor Stephen Glaister's work in relation to the significant disruption that accompanied the rail timetable change in May, but will take the findings of his final report into account.
Transport secretary Chris Grayling that it was "clear" that the UK railway network "is no longer fit to meet today's challenges and cope with increasing customer demand".
"We've been clear that the railway needs reform to prioritise its passengers, and we have set out plans for closer partnerships between operators of track and train, including on the LNER [the former East Coast Main Line] and South Eastern networks," he said. "But as part of our vision for the future of mobility, we need to go further and more quickly, to get the best from the public and private sectors and deliver the railway we need for the 21st century."
The government will set out the full terms of reference for the review once the UK parliament returns next month following the political party conferences. However, it said in its announcement that the review would consider how to "[bring] track and train closer together to reduce disruption and improve accountability", regional partnerships and "how we can use innovation to improve services and value for money for passengers".
The current system separates privately-run passenger services from publicly-owned rail infrastructure. Network Rail possesses the statutory licence which makes it responsible for the maintenance and renewal of physical railway infrastructure assets, while train operating companies (TOCs) bid for regional franchises giving them the right to operate services over those assets for a time-limited period.
Rail industry expert Nigel Blundell of Pinsent Masons, the law firm behind Out-Law.com, said that some of the problems in UK rail stemmed from the lack of integration between "train and track".
"While the review may open up the possibility of further private sector funding, there are issues around how you get a rate of return out of the physical infrastructure when the private sector does not have ownership," he said. "The more sophisticated contracts that Network Rail uses do provide for stakeholder consultation, which can lead to an integrated approach. Perhaps the solution is to ensure that this discipline is adopted in all major contracts."
"Regional transport will also be a key issue for the review, and the government has appointed Roger Marsh who chairs the body representing the north of England's local enterprise partnerships to lend his expertise. Regional transport will play a strategic role in HS2 connectivity, and the regions need a greater share of national transport spend to prevent the recurring issues seen with the Northern franchise," he said.
There were also significant questions to be asked about lack of control and leadership of the railways, pointing to the Department for Transport (DfT), Blundell said. A report by economic regulator the Office for Rail and Road (ORR) found that "nobody took charge" during the May disruption, and found failings by the the DfT, TOCs, Network Rail as system operator and even itself.
The government said that it would continue with its five-year £48bn investment programme while the review was taking place, as well as with the majority of franchise competitions and other live rail projects. However, it will not award a new Cross Country franchise on the route between Aberdeen and Penzance next year, due to the "unique geographic nature" of the route which "could impact on the review's conclusions". Arriva Trains UK will continue to operate the franchise on an interim basis, it said.