ATOC: "TOCs collectively pay more to Government than they receive in subsidy"

[whole diary]

[Lee]

From The Telegraph:

Railways 'in black' for first time in two decades

Operators pay the state more than they receive in subsidies, say Atoc figures.

Britain's railways are back in the black for the first time since privatisation was set in motion 20 years ago, figures show.

Train companies collectively pay more to the Government than they receive in subsidies to operate the railways, although some individual lines do remain loss-making.

The figures have been produced today by the Association of Train Operating Companies (Atoc), based on an analysis of figures released by the rail regulator.

They show that train operators have paid the Government a balance of ^256m in 2012-13. Ten years ago they were being propped up with an annual ^1.4bn of taxpayer subsidies, according to the Office of Rail Regulation, but that has now been reduced to ^957m.

Train operators say the change has come about predominantly from growth in the number of people using the railways and insisted the boost was not as a result of increases in fares. A record 1.5bn train journeys were made in 2012-13, the highest since the Twenties.

"While significant amounts are still being invested in rail infrastructure, for the first time, train operators taken together are returning more money to Government than they receive," said Michael Roberts, chief executive of Atoc. "This means taxpayers are over ^1.6bn better off than 11 years ago ^ equivalent to ^62 for every household in Britain.

"Significant investment and an industry focused on attracting more rail users are generating passenger growth unseen for 80 years. This in turn is producing record levels of revenue allowing Government to cut significantly the subsidies it pays to train companies."

Train companies are generating an extra ^3.2bn in passenger revenue compared to 10 years ago ^ 96pc of which comes from passenger growth and just 4pc from fare increases, Atoc claims.

Opponents of privatisation seized on the figures as proof it has failed since it was set in motion in 1993, when John Major^s Conservative Government approved an Act that would allow rail franchises to be let to private sector operators.

Bob Crow, general secretary of the RMT^▸ (National Union of Rail, Maritime & Transport Workers) transport union, said: "A generation of rail privatisation has been a multi-billion pound rip-off leaving British passengers paying the highest fares in Europe to travel on overcrowded and clapped out trains. Atoc are openly admitting that for 20 years they have been robbing the taxpayer for bungs and corporate welfare which has been a one way ticket to the bank for their members."

Unions and the Labour Party are campaigning for the East Coast Main Line, which was renationalised in 2009, to remain in public hands as a benchmark for judging the performance of private sector operators.

Transport Secretary Patrick McLoughlin has prioritised returning the East Cost line to private hands before the general election, rather than re-letting other franchises such as London-to-Scotland West Coast services and the London-to-Cardiff Great Western line.

Atoc denied the figures were an admission of failure. It said the railways were deep in the red before the process of privatisation between 1993 and 1997 and that train operators had succeeded in significantly boosting passenger numbers.

[trainer]

A breakdown would be interesting to see how much Directly Operated Railways (East Coast) contributed to the balance compared with private companies.

[stuving]

A breakdown would be interesting to see how much Directly Operated Railways (East Coast) contributed to the balance compared with private companies.

There's tables on the ORR^» (Office of Rail and Road formerly Office of Rail Regulation - about) site, here: http://dataportal.orr.gov.uk/displayreport/report/html/6d363642-c3a9-4a29-9477-542810798fa7.
East Coast has one of the most negative subsidies ... if you see what I mean.

[trainer]

Thanks, stuving, that's a most interesting table.  From my limited numerical understanding, in itself the table is not obviously telling us that the nationalised company is returning more to the exchequer than some of the private ones.  Indeed the pre-privatised East Coast franchise holder also returned a small surplus.  Although I am more idealogically inclined towards more of the national interest being part of the regulation of the railways, I am not: a) in favour of the return of BR^▸ (British Rail(ways)) or b) a believer in the axiom that what is good for commercial interests is good for the country and in this case, rail passengers.

Stats are all well and good, but clearly tell only part of the picture.  Overall there has been a step-change for the better since privatisation.  However, the crazy way it is continuing to be implemented seems to me to be preventing even more savings to the country and improvements to 'customer experience'.  I note that the companies mainly operating within Wales and Scotland cost the most, but deliver a service well above some others in areas of sparse population and/or comparative poverty.  The question for me is as much value for money not just the total amount spent.

I look forward to others helping me to unravel these figures.

[Ingleborough]

Of course East Coast does not have to pay it's way in the same way other TOCs^▸ (Train Operating Company) do. No franchise premium, cheaper track access charges, and they have deferred a lot of work that other franchises have to undertake. It's been a 'holding exercise'.

There is a lot more to look at than just a simple subsidy profile, and the Govt. makes more out of franchising than anybody else, especially the operators.

[ellendune]

Of course East Coast does not have to pay it's way in the same way other TOCs^▸ (Train Operating Company) do. No franchise premium.

What is their negative subsidy of ^190 million then?

[Ingleborough]

Of course East Coast does not have to pay it's way in the same way other TOCs^▸ (Train Operating Company) do. No franchise premium.

What is their negative subsidy of ^190 million then?

It's the profit they made over and above the subsidy paid on ticket sales. Other TOCs also pay that, plus they pay a franchise premium, they pay full track access and are not allowed to defer work committed to under a franchise agreement. In effect as both Network Rail and DOR (East Coast) are Government owned companies, the taxpayer is subsidising this operation far more than the published figures show.
 I have no problem with that, but it should be remembered that National Express and GNER^▸ (Great North Eastern Railways) before them were making profits and paying large sums to the taxpayer as well. In GNER's case the parent company, Sea Containers, ran into trouble totally unconnected with the railway and could not pay the annual performance bond.  Could another operator have bought the franchise from Sea Containers?  Ask the DfT^» (Department for Transport - about). I personally think it tragic that GNER, are no longer around.

National Express made their profits forecast when taking over the franchise, but the recession occurred and the forecast was too optimistic. They were making money, and paying the Govt.  but not enough to meet the agreed level. 
Back then the DfT civil servants were basically telling operators bidding for a franchise that they had to pay the Govt. a lot of money for the privilege of doing so, and that they had to guess what big figure was in the mind of the Treasury and get a bid that was either very close or exceeded it.

Those who feel East Coast is justification for running a 'nationalised railway' are comparing oranges with apples in my opinion.

The franchising model is now a lot more mature, the taxpayer is making a profit overall, the DfT have (finally) got some expertise and set up a separate railway section, plus bidders are more realistic. 

This new contract for FGW^▸ (First Great Western) will take into account the risks inherent with running a service along a giant building site, plus the introduction of the new IEP^▸ (Intercity Express Program / Project.) trains and electric commuter stock in the Thames Valley, the transfer of some services and staff to Crossrail, and the move westwards of the DMUs^▸ (Diesel Multiple Unit) currently based at Reading, which themselves have to undergo a rebuild to make them fit for many more years service.  We still do not know for certain what will run the services to the far South West. Life extended HSTs^▸ (High Speed Train) were the original intention, but the costs could well see that idea scrapped and either more IEPs with more diesel engines installed, or class 222s transferred as the Midland Main Line is electrified. (I'm hoping for an HST solution, still the premier train.)

[eightf48544]

I think I'll leave it to Roger Ford to untangle the figures.  Don't forget that the TOCs^▸ (Train Operating Company) also benefit from all the money we pay Network Rail which I believe is more than TOCs pay back.

As to franchising I believe the Wolmar Question "What us franchising for?" has still not been answered.

I think that the concession type model as for Lorel DLR^▸ (Docklands Light Railway) and Merseyrail is the model we should follow.

Or we could use the German model where the operator bids to run so many million train kilometers over certain routes and provides the stock and staff to do so. With Interchangeable fares for all types of public transport being fixed by the local traffic unions. Thus you can start on an RB train change to Tram and then a bus or even a ferry  with the same Zonal ticket. A bit like London really.

Perhaps I should start a new topic. Why do multi mode Zonal fares work in London but nowhere else in the country?

[4064ReadingAbbey]

I don^t know whether to take the continually repeated question ^What is franchising for^ seriously or not! Christian Wolmar asks it because he is a journalist with a political agenda and wants to provoke. I^m not sure I understand why others do!

My understanding of the situation is as follows.

Firstly, I suggest that the term ^franchising^ is a misnomer. In a true franchise the franchisee leases the use of a ^brand^ - essentially he buys into the marketing muscle of the owner of the brand, be it ^Jamie^s Italian^ or ^MacDonalds^ or similar. The franchisee agrees to supply the capital for the premises and operations and is entirely responsible for the operation within the limits set by the franchisor. The franchisor carries out the quality control function to ensure that the franchisee operates in such a way that value of the brand is, if possible, enhanced. No franchisee will be allowed to damage the brand.

This is not the case for the railways - no brands were franchised. The current arrangements are more accurately described as management contracts. If the DfT^» (Department for Transport - about) had continued to use the 'InterCity', 'Network SouthEast' or 'Regional Railways' brands and let contracts to run part or all of them under those names then the resulting system could have been more accurately described as a franchise. The quality control function would have been carried out by the DfT.

Management contracts on the railways come in two varieties: (i) the income risk rests with the TOC^▸ (Train Operating Company) (that which is currently called a ^franchise^) or (ii) the income risk rests with the DfT or its appointees (a ^concession^). There is no real difference in the modus operandi in either case, all that changes is the way the premium/subsidy is calculated and handled.

Why have management contracts anyway?

This lies back in the early history of the ^privatisation^ of the railways and the view that the railways were in permanent state of decline; a way had to be found of supplying state aid for the Public Service Obligation trains to private sector operators in a transparent and manageable way.

One of the hopes of the Government of the time was that private sector operation would result in lower costs and by offering groups of services to bidders an award could be made to those who offered to operate a given group of services for the lowest subsidy. At the time nobody predicted the subsequent increases in ridership.

Over the years of course the increasing number of passengers, the rise in fares in real terms and the successful application of yield management has meant that more and more of the TOCs can offer premium payments to the Government for operating their patches rather than requiring a subsidy.

This description simplifies the evolution of the ^franchising^ process considerably, many other models of returning BR^▸ (British Rail(ways)) to the private sector were examined, such as simply selling off BR as ^BR plc^, to selling BR^s ^Sectors^ (InterCity, Network SouthEast, Regional Railways) individually, reverting to ^The Big Four^ and so on. For anyone who is interested in the the story of privatisation I can recommend the book ^All Change. British Railway Privatisation^, edited by Freeman and Shaw, MacGraw-Hill, 2000. ISBN 007 709679 7.

So, this is the answer. ^Franchising^ is a way of getting the best deal for the Government by offering a time-limited deal for running train services in a given geographic area. The competition for the contract between potential operators will, in crude terms, enable the Government to either minimise its subsidy payments or maximise its income.

It^s quite simple really.

And Wolmar knows it too - he wrote Chapter 6 'Creating the Passenger Rail Franchises' in the book I mentioned above.