Baroness Kramer, who served in the Coalition Government, told an event organised by the Institute for Government think tank that the Department’s role in the railways should be restricted to devising an overarching strategy and seeking realistic levels of public investment. Running of the railways should be left to the new agency, she explained, whose membership would include Network Rail, train operating companies, the Rail Delivery Group and the rail aspect of the Office for Rail & Road.

“A large part of the system is frankly dysfunctional; Governments of all shades were mesmerised by the private sector and an expectation that a highly fragmented and complex structure could be managed by penalties,” she remarked. “It was a system designed by lawyers and we are paying the price for that.”

Baroness Kramer called for rail franchise arrangements to be replaced with new public benefit companies or concessions and for greater engagement with regional bodies. More access to funding from capital markets is required, she added, and for greater use of land value capture to deliver the “massive investment that is required”.

She also urged the better alignment of interests from different parties involved in running the railways. “I have never seen an industry with such conflicting interests. Franchises deliver 2% profit margin but are topped up by penalties from Network Rail to about 6%.”

She suggested that a new railway agency would deliver innovation and take better decisions over the deployment of rolling stock. “It is not funny that we have lots of unused trains sitting (idle) all over the place.” She also described the current ticketing and fare arrangements as “a nightmare”.

Baroness Kramer was asked how safety would be ensured by a new railways group. “Everyone is incredibly proud of safety in the industry and the safety voice needs to be there in that body; it shouldn’t sit at the side.”

Also speaking at the event was Transport Select Committee chair Lilian Greenwood. “Safety clearly has to be a top priority; look at how we got to the current structure – we went through some painful times and serious accidents. Generally the UK railways are getting safety right and I am wary of changing things that are working well.”

Lilian began by speaking about the current Williams Review into the railways which could “potentially turn into a Government white paper”. She also asked whether there may be a Department for Transport when the review publishes, suggesting that a rumoured Department of Infrastructure may have taken over. “A lot is happening that could knock things off the agenda.”

She added that passengers confidence is not as high as it should be and that their level of trust in the railways is not where it wants to be. “People have to know that someone will take responsibility when something has not happened. At the moment, that is not the case.”

One of the more concerning issues, she added, is that rail users have stopped regarding problems as exceptional. “We have got used to a railway that doesn’t quite deliver.” She added that “fares are absolutely baffling and the promise of rail infrastructure improvements are all too often not delivered or on time or for equal parts of the country.”

Rail Delivery Group chief executive Paul Plummer told the event that he welcomed the suggestion of a new railway body “at arm's length that can de-politicise decisions”. He added that running of the railway has to work locally and that the “current one size fits all franchise arrangement needs to change”. With regard to fares he also called for reform. “I strongly believe we need to look at that, rather than fiddle and continue to paper over the cracks”.

A Network Rail spokesman declined to comment on Baroness Kramer’s remarks, but added that it fully supports and awaits the outcome of the Williams Review. The Department for Transport was approached for a response.

(Photograph: Network Rail)