Money

Private train operators receive £400m in subsidies


The privatised UK train operators received taxpayer support for the first time in five years, according to the latest figures released by the industry regulator.

The government paid a net total of £400m in subsidies in the 12 months to the end of March 2019, an £800m swing from a year earlier, according to the Office of Rail and Road on Wednesday.

The regulator’s annual railway funding report said the rise was because of increased funding for new trains, as well as a change in the way Network Rail is funded “rather than wider performance issues” of the franchises.

It represents the first time since the 2013-14 financial year that train operators have not made a net contribution to government coffers.

The report comes at a difficult time for the UK rail industry. Last month, the government announced that Northern Rail would become the second franchise to be nationalised. The incumbent, Arriva, part of Deutsche Bahn, the German state railway, will be stripped of its role from March 1.

Several other operators are also struggling financially as they fall short of the revenue growth forecasts made as part of their winning bids.

This is in part because of government failures to carry out promised infrastructure upgrades through state-owned Network Rail, the owner of the track and most of the UK’s stations, as well as delays in the delivery of new rolling stock and industrial action.

Last month, Grant Shapps, the transport secretary, warned that South Western Railway, Britain’s second-biggest commuter network, could also be nationalised within months.

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The ORR noted that a large part of the change in payments in the 2018-19 financial year was because of a policy decision that changed the way the industry is funded.

This resulted in train operators paying higher charges to Network Rail, which were reimbursed by the government. It said this related to £500m of the change in payments.

John Thomas, director of policy at the Rail Delivery Group, which represents train operators, said: “Policy decisions meant that last year train operators paid less to government because more was paid in charges to Network Rail and to invest in new trains.”

Mr Thomas said that the trend over the past five years showed that operators had made a net contribution of £2.4bn to the government, which he claimed “has freed up taxpayer money to invest in a better railway”.

During 2018-19, the railway industry received £21.8bn of income, an 8.8 per cent increase from the year before.

Passenger fares contributed half of the total, or £10.4bn, an increase of 2.6 per cent on the previous year. Meanwhile, Network Rail received £3.9bn in funding from the Department for Transport and Transport Scotland.

The cost of running the railways was £22.1bn, a 4.1 per cent increase from the year before. Network Rail’s expenditure rose by 4.5 per cent to £9.3bn because of higher compensation to train operators for delays to services. Train operators’ expenditure rose 8.9 per cent to £14.4bn.

Nigel Harris, managing director of the Railway Consultancy, said that over the past two years the government had required train operators to introduce new trains which had resulted in higher leasing costs.

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The update on financial performance comes as the industry awaits a sweeping overhaul of the sector that is likely to see franchises replaced with more flexible concession contracts and the creation of an overarching body in charge of the entire network.

The proposals will incorporate the final report of an independent review into the rail industry by Keith Williams, the former British Airways chief executive, who has called for “revolution, not evolution”.



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