Ex-Civil Aviation Authority chairman Sir Roy McNulty, who led the review, said tickets were "already too high".
The cost of running the network should be 30% lower, bringing it in line with other European railways, Sir Roy said.
He lists 10 main barriers to efficiency and makes various recommendations to deliver savings of ?1bn a year by 2019.
Sir Roy said: "Achieving a 30% efficiency improvement by 2019 should be the target for the GB rail industry given the study's findings on the industry's costs compared to European railways and other industries.
"A reduction of this magnitude is achievable, and is essential if passengers and taxpayers are to get the fair deal they deserve from the rail industry."
His report, which was commissioned by the previous government and will feed into a White Paper expected in the autumn, will affect the rail industry in Scotland, England and Wales. The railways in Northern Ireland are fully funded by the Northern Ireland Executive.
'Booming industry' UK rail fares are already the highest in Europe, with rail fares for season ticket holders due to go up in January 2012 by 3% above the RPI inflation rate.Passenger groups have also been calling for a reform of the fare structure, because trains are often empty at the end of peak hours, but busier at the beginning of the off-peak period.
Sir Roy's study said the government should undertake a full review of fares policy and structures to make it a "less complex and more equitable" system.
"The study does not recommend an increase in fares revenue overall, but instead envisages some fares increasing and others decreasing correspondingly," the review said.
Transport Secretary Philip Hammond says the railways are "booming" but the industry needs to change.
He told the BBC the proposed reforms would lead to a future in which "we do not have to have fares rising above the level of inflation".
Passengers at Marylebone on what they think the rail network's biggest issues are"By making savings, the pressure will come off fares in the future. We have to drive down costs in the railways. The rail industry, frankly, has not changed as much as it should have," he said.
"This is not an industry in decline. It is a booming industry."
In addition to the fare structure, the report's other main barriers to improving efficiency included the role of the government in the railways, the franchise system and the way in which "major players in the industry have operated".
His recommendations include:
There should be no line closuresFranchising should be reformed"Devolution and decentralisation" within Network Rail, which manages the railway infrastructureA rail delivery group should be set up to "lead a substantial programme of change".Network Rail chief executive David Higgins said Sir Roy's work gave the industry the "direction it must take".
The report says Britain's rail industry must become more efficient in line with its European neighbours "We are well on our way to cutting the cost of running the rail network by over ?5bn in our current funding period (2009-14)," he said.
"We recognise there is more we can do to bring about fundamental change within our organisation to make it more efficient and customer focused, which will include a completely new kind of relationship with train operators and with suppliers."
The Office of Rail Regulation (ORR), which jointly sponsored the study, said Sir Roy's team had brought into "sharp focus" the value for money challenge facing the industry.
Anna Walker, chair of the regulator, said: "One of the keys to unlocking this prize is to strengthen the incentives on all the players to work collaboratively to improve services for customers and reduce costs."
A spokesman for the train drivers union Aslef said the report was "seriously flawed" in several areas, "especially its proposals to give track maintenance back to the privately-run rail companies".
'Wrong direction'Sir Roy said rail wages had risen twice as high as those for other industries, and called for a review of staffing and working practices.
There had been "excessive wage drift and inefficient working practices" in the industry, the review said.
Continue reading the main storyThe way the reform is done has to be built around what passengers want. They want a punctual, reliable, affordable service”End Quote Anthony Smith Passenger Focus Any cost-cutting could put ministers on a collision course with the unions. Bob Crow, general secretary of the RMT union, said privatisation was to blame for Britain's high rail operating costs.
Mr Crow told BBC Radio 4's Today programme he did not know what could change with regards to working practices.
"To turn around and say working practices have not changed in decades is completely untrue," he said. "If you are talking about changing working practices to make people work longer, that is a step in the wrong direction."
Anthony Smith, chief executive of Passenger Focus, said passengers were already paying too much into the railways and the report was an opportunity for the industry to show how it could reduce costs.
"We've got some of the highest rail fares in Europe, we have inflation-busting rises over the next three years and we're putting over ?6.5bn into the rail industry already," he said.
"The way the reform is done has to be built around what passengers want. They want a punctual, reliable, affordable service."
Rail analyst Christian Wolmar says the high cost of Britain's railways is down to fragmentation.
He said when British Rail ran the railways it cost taxpayers "around a billion pounds a year in today's money, now the railway with many more people on it, so it should be more efficient, is costing ?5bn".
"It should not have taken a huge brain to work out that actually it was something to do with the process that changed the railway from one unified management into 20 train operating companies, an infrastructure company and so on," he added.
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