Justine Greening says nationwide rollout of Oyster-style technology and fewer on-train staff could help reduce subsidy
The transport secretary, Justine Greening, has confirmed the government is looking for deep cost-cutting in the rail industry to deliver savings of £3.5bn a year by 2019 by radically altering the way the system is run.
Greening said passengers and taxpayers were picking up the tab for the "costly efficiency gap" and that reform was long overdue.
She said more smart ticketing – with technology similar to London's Oyster rolled out across the country – and deeper collaboration between Network Rail's track managers and the train operating companies could cut costs. The detail of how this can be achieved will be left to the industry's own bosses to decide via the Rail Delivery Group.
Greening also announced a consultation on fares that could allow operators to sell airline-style ticketing, with prices rising according to demand rather than the current structure. Passenger groups believe this could spell even higher peak fares.
Greening did not deny claims that more flexible fare structures could spell even higher peak-time prices on commuter routes, but she said season tickets should be reformed for "21st century" working practices, with discounts to suit flexible and part-time commuters.
The rail command paper was a response to Sir Roy McNulty's 2011 rail value for money study, which said the UK's railways were among the most expensive in Europe and the industry could make savings of up to 20%-30% by changing working practices.
McNulty cited high wages, and proposed fewer staff on trains and the closure of hundreds of smaller booking offices.
Thursday's command paper says the industry should seek to implement more driver-only trains and that future franchises will be awarded on the basis of past records in driving down costs. It notes that one third of rail costs is labour.
However, Greening denied this would necessarily mean job losses overall, pointing to investment which would mean more skilled jobs in years to come.
Current central subsidies to the rail industry run at around £3bn-£4bn annually, excluding expenditure on big infrastructure projects such as Crossrail and the £33bn minimum earmarked for HS2, the high speed rail tracks linking London with the north.
Unions have warned concessions to private train operating companies to run both trains and track will suck more taxpayers' money into private profits. The RMT general secretary, Bob Crow, said: "We have said from the outset that McNulty is the biggest threat since privatisation a generation ago and will be met by a national campaign of resistance."
The Campaign for Better Transport warned that super-peak fares would not be effective in managing demand as many commuters have inflexible work times or family commitments. Their research suggested higher peak fares would have only a marginal impact on travel patterns.
The shadow transport secretary, Maria Eagle, said the restructuring plans were "deeply worrying" and left "a massive accountability gap at its heart". She said it would create an even more fragmented system with more costs and more opportunity for train operators to raise fares and close services.
Michael Roberts, chief executive of the Association of Train Operating Companies, said: "Contracts signed between rail operators and government over the next two years will define how trains are run for the next two decades. The government must genuinely step back from the detail, give the railways the freedom to run better services at a lower cost and resist increasing the burden of red tape."
Greening also announced a consultation on devolving power over the network, an opportunity likely to be welcomed by regional transport authorities who would like to emulate the kind of integrated model of Transport for London.