A costs review will centre on why railways in Britain are far more expensive than some in Europe, the Government said.
Sir Roy McNulty, chairman of regional development agency Advantage West Midlands, will lead the review, reporting back to Transport Secretary Philip Hammond this autumn.
The cost of running Britain’s railways has risen but income from users has not kept pace, the Department for Transport (DfT) said.
Comparisons suggest Network Rail (NR) is 30-50 per cent less efficient in terms of maintenance and renewal expenditure than other European railways.
Civil engineering costs in the UK are typically up to double those in Europe, while train operating costs in Britain are still above their level in 1996-97 when privatisation was introduced.
In contrast, rail franchise systems in countries such as Germany and Sweden have reportedly led to cost reductions of between 20 per cent and 40 per cent.
Former Transport Secretary Lord Adonis announced an independent review into rail value for money last December.
Mr Hammond said: “Passengers and taxpayers will rightly ask why it is that our railways in the UK are so much more expensive than those in the rest of Europe.
“Given the very significant financial constraints that we face, it is essential that we drive out inefficiencies and reduce costs. Better value for money is the only way we are going to protect train services and avoid very high rises in train fares.
“This report by Sir Roy McNulty will play a key role in informing how we go about creating an efficient and modern railway fit for the 21st century that provides taxpayers with value for money.”
The study, and the findings, are jointly sponsored by the DfT and the Office of Rail Regulation (ORR).
Sir Roy said: “The railway as a whole faces significant challenges in terms of costs and affordability. Finding effective responses to these challenges will not be easy in such a large and complex industry.
“The study team has been encouraged by the ready co-operation we are receiving from many people within the industry, and from ORR and DfT. Our aim, with their help and support, is to chart a route to a sustainable future for rail in this country”.
ORR chief executive Bill Emery said: “In recent years there has been significant growth of passenger and freight traffic on the railway, while performance has improved considerably. However, the current cost of running the railway is too high, and the burden on the taxpayer too great.
“The study will bring together the entire rail industry to explore ways in which we can reduce these costs so that our railway can continue to grow and prosper. The study will make recommendations about how the industry can meet the challenges of the future towards achieving our vision of a railway which delivers safety, efficiency and satisfaction levels to world-class standards.”
NR said: “We look forward to playing our full role in the work of the McNulty review.
“We recognise the imperative of further driving down costs across the whole rail industry and are keen to share our ideas and experience. This is a journey on which NR has already made good progress with over £6 billion, or 27 per cent, cut from the cost of running the rail network over the past five years and a further 24 per cent targeted by 2014.”