The battle over how much taxpayer cash the rail industry will get from September has sharpened, with train operating companies (TOCs) facing cuts that could put them out of business.
The Sunday Telegraph said ministers have offered TOCs ‘take it or leave it’ deals to replace the current Emergency Measures Agreement (EMA) contracts for up to two years.
Quoting ‘industry insiders’, it said terms have been made on an operator-by-operator basis, with firms that were struggling financially prior to the pandemic offered an operating profit margin of as little as 0.5%, compared to the current 2%.
A near-empty South Western Railway train, May 2020
One firm that is known to have been struggling financially before the lockdown is South Western Railway whose owner, First Group, warned in January that it may struggle to continue as a going concern.
A spokesperson for First Group told Transport Network: ‘Transport will be key for economies to restart after the pandemic, and discussions continue between Government and all operators to ensure that rail services keep running throughout this management contract period and also that a future framework is established.’
The Sunday Telegraph said it understood that Whitehall officials contacted train operating companies (TOCs) over the last week, offering new a new version of EMAs called ‘Emergency Recovery Measures Agreements’.
Given that firms have fixed overheads beyond their operating cost, low margins will push some firms into the red. This could leave them little choice but to surrender their franchises.
However, ministers are said to be keen not to ‘reward operators for failure’.
New contracts are expected to be formally announced later this month with transport secretary Grant Shapps set to provide an indication of the terms being offered this week.
The Department for Transport declined to comment, other than to point out that Mr Shapps stated when EMAs were introduced that they could be extended.
Separately, the Times reported that Network Rail could be given a new role as a 'strong, guiding, co-ordinating mind' to oversee the industry in England.
The creation of this new role or a new body to carry it out was expected to be a recommendation of the Williams Rail Review. However the review's final report is also now in doubt due to the changing cirumstances resulting form COVID.