Ministers have failed to establish proper controls over Network Rail's spending, while the directors lack incentives to provide value for money, a report from the National Audit Office has concluded.

NAO head Sir John Bourn said there were still challenges Network Rail had to face but that "the outlook is certainly better than it was in 2001".

Transport secretary Alistair Darling responded: "Network Rail has made a good start in reducing costs, and is driving up performance. The government wants to build on this as part of the rail review."