Rail Subsidy North and South

1 September, 2015

Oh dear, here we go again. ‘Northern rail services cost southern commuters £1 billion’ says the Daily Telegraph (27th August). ‘London commuters bankroll Northern rail services’ says ITV (28th August).

What’s worse the regulatory body that produces the statistics – the ORR – leads the headline writers with statements like: ‘The trend for regional train operators to receive a subsidy whilst those in the Long distance and London and South East sectors pay a premium back to government has continued this year.’

This is seriously misleading, and here’s why. There are two subsidy channels and these headlines reflect only one of them.

Train services get the agreed subsidy or premium between Government and the franchised train operators having paid track access charges to Network Rail that don’t meet the full cost of the provision of the national network. The shortfall is met by a Network Grant (worth £3.8bn) paid out by Government directly to Network Rail. Across the whole country, subsidies to train operators would have been a lot higher in 2014-15 without this grant.

ORR publishes data on how it – operative word alert – thinks Network Grant benefits the various train operators, but doesn’t attempt to assess the cause of costs. It is sad to record that British Rail accounting by the end of the 1980s was better than this.

However, it looks like regional rail operators – including those in the North – pay about 30% of Network Rail’s total track access charges but only benefit from 20% of capital investment. Regional train operators are receiving investment levels below the levels of the track access charges they pay.

Trains in the North cause less wear and tear on the track (they are typically shorter trains and lighter too), but this also gets lost in the ORR assessment which is a guesstimate partially based on train mileages.

All told, it seems that regional train operators are being allocated annual costs that are some £500m higher – through a combination of Network Grant and track access charges – than they would be through a system based on actual capital expenditure. So just looking at infrastructure charges, Northern rail services are subsidising the South, in contrast with the subsidies/premiums paid or received by the franchised train operating companies.

Overall, rail subsidy levels are much closer between the North and the South than the recent media headlines suggest.

For more detail on this subject, see Greengauge 21’s study on the Northern franchise subsidy carried out for the Campaign for Better Transport entitled Northern Rail: Stepping Stones to a rebalanced Britain