Fares to rocket and jobs to be cut in the great train shake-up

Network Rail may be broken up as leaked review outlines drastic measures to cut £5bn subsidy

Millions of rail passengers face misery under dramatic plans to allow fares to rocket while closing ticket offices and firing on-board staff, The Independent on Sunday has learnt.

Leaked documents reveal that a government rail review will suggest that ticket pricing is too complex, too subsidised, over-regulated and inadequate at managing rush-hour demand. It sets out plans to slash staff numbers while proposing the decentralisation of Network Rail and its possible break-up.

Ministers risk angering the public and facing a stand-off with unions if they press ahead with the proposals, being drawn up by Sir Roy McNulty, the former chairman of the Civil Aviation Authority, who has warned that annual state funding for the industry of £5bn is unsustainable.

In a detailed presentation of his Rail Value for Money review, seen by The IoS, Sir Roy paints a bleak picture for passengers if the railway's finances are to be reformed. It warns that industry costs are a "major problem" and need to be reduced by up to 35 per cent to match competitor countries in Europe. The industry has to give a "better deal" to both passengers and taxpayers.

In a workshop last month with senior industry figures, Sir Roy set out the early findings of his study, to be published next month. He told the seminar that "staffing on trains and in ticket offices can be significantly reduced", while "changing terms and conditions, especially for drivers, will reduce costs". The report will recommend that ministers launch a comprehensive fares review, with the aim of "removing or allowing more flexibility in relation to caps on fares".

"Some fares are much lower than the market could/should bear," Sir Roy's presentation said. Walk-on fares on peak services could be banned. Only those with season tickets or booked seats are able to travel on the very busiest services.

A Rail Delivery Group will be set up by the industry to focus on cutting costs and making best use of existing capacity. It will call for longer franchises for train-operating companies of up to 15 years and "more freedom to set fares". Sir Roy also advocates "deregulation of ticket office opening hours balanced by the introduction of modern technology", raising the prospect of more barriers and card machines at stations. A similar plan for the London Underground by Mayor Boris Johnson provoked a wave of strikes on the Tube.

Bob Crow, general-secretary of the RMT rail union, vowed to "fight this attack on jobs, safety and service quality every step of the way".

The study identifies barriers to efficiency, including "unproductive relationships" with the unions, the structure of Network Rail and too much government interference.

Philip Hammond, the Transport Secretary, insisted that the Government recognises that there is an issue with over-crowding at peak periods and is investing in a new high-speed network to triple capacity between London and Birmingham.

"We're very clear that the whole purpose of the McNulty review over the medium term is to get a better deal for taxpayers and fare-payers by reducing the cost of our railways."

Maria Eagle, the shadow transport secretary, warned: "It's clear that the Tory-led government plans to embark on a dangerous experiment by breaking up Britain's railway infrastructure. Yet more fragmentation isn't the answer; neither should passengers be expected to take on yet more of the cost when they are already seeing household budgets squeezed by the eye-watering fare rises ordered by ministers."