Rail regulator lets the cat out of the bag

We at Action for Rail were struck by a report that the Office for Rail Regulation published this week, Costs and Revenues of Franchised Passenger Train Operators in the UK

This report made 2 crucial statements that are worth quoting in full:

First, in relation to public subsidy, the report makes the important point that as well as direct payment from the taxpayer to train companies through subsidy and revenue support, train companies also benefit from the public funding of Network Rail because they pay heavily subsidised track access charges, much cheaper than the market rate.

The report states that:

“were NR to stop receiving this grant the TOCs would face much higher track access charges and would require much larger subsidies to make the provision of rail services viable”

Viable is the crucial word there. What this report is saying is simple: without public funding, private train operation is not viable.

The second key statement the report makes is that

“train operators are thinly-capitalised companies with few assets and relatively little ability to bear downside risk (the risk of higher than expected costs or lower than expect revenues)”

So the official regulator of the rail “market” is going on record to say that:

Train companies don’t own anything, have very little investment behind them, rely on taxpayer money to remain viable and require state bail outs whenever they encounter any problems in the market.

That’s why recent DfT figures show that, taking Network Rail funding into account, nearly every Train Operating Company is a net recipient of public funding.  See our press release here for more details.

And it’s why seven, probably soon to be eight, different train companies are currently receiving taxpayer bailouts through the revenue sharing or cap and collar arrangements that ensures that the state will always shore up private train company profits.

This then gets to the heart of the current franchsing crisis.

Private train operation is incompatible with the long term needs of the rail industry. Everyone knows this. Which is why franchising is such a painfully complicated process. The whole process is an artificial way of making it look like train companies are competing in a market that doesn’t really exist. What does it matter at the end of the day what numbers First Group or Virgin put in the tenders when it’s the taxpayer that ultimately funds it all and bears all the risk?

The government of course has made sure that their review into the future of franchising ignores any kind of evaluation of genuine value for money for the passenger and taxpayer and has made clear its intention to get franchising back on track as soon as possible. 

And of course they’re now on the verge of handing West Coat back to Virgin, we can only guess at the price that Virgin will be extracting from us all.

Why the rush? Well over at East Coast, state run rail is doing rather well and the government is terrified at the prospect that their two highest profile intercity lines covering the length and breadth of the country might both be operated by the state at the same time. That would endanger their whole mad enterprise.

But the important point for us is that it’s opened up the whole debate. And it’s up to us to make sure that the a genuine critique of franchising and, by extension, the whole nature of rail privatisation is part of that debate as well, of course, as the benefits of the alternative of public ownership.