Rail firms have raised the prospect of the industry being renationalised as they battle for more public cash in the face of huge drops in passenger revenue.
Industry body the Rail Delivery Group (RDG) has declined to comment on a report that its own forecast shows demand for train services at only 90% of pre-pandemic levels in five years’ time.
The Sunday Telegraph said that while such a scenario would make it almost impossible for the rail industry to remain in private hands without significant taxpayer cash, the Government plans instead to halve the level of profits allowed under emergency measures agreement (EMA) management contracts from September.
A very quiet East Croydon station
The paper said that such a move would not cover the long-term costs of train operating companies (TOCs) and that they are ‘bracing for full nationalisation’ if ministers allow firms to go bust.
Quoting ‘an industry source’ it said the long-awaited Williams Review of the industry ‘may not see the light of day’.
Last month transport secretary Grant Shapps told the Transport Select Committee that the current regime, where ‘we have now ended up holding the entire network in our hands’, had in some ways shortened ‘the route between where we were and where we need to get to’.
In the medium term, the significance of negotiations between the industry and government on what will replace EMAs from September has been heightened by a statement from the Office of National Statistics (ONS) that it is assessing whether to change the statistical classification of TOCs within the national accounts. This could see TOCs reclassified as public entities.
The RDG, which represents TOCs and Network Rail, says it is seeking new contracts that incentivise operators to encourage people to safely return to travelling by rail, reducing the subsidy required.
Responding to the ONS statement last week, RDG chief executive Paul Plummer said: ‘The prospect of reclassification underscores the need for a fundamental reset of the relationship between the public and private sectors in rail, something we have long been calling for and which the Williams review, yet to report, was set up to deliver.
‘Government has an opportunity to accelerate the drive to a renewed system as it considers what replaces EMAs, which were put in place as a short-term response to the pandemic.
‘To ensure passenger numbers recover as quickly as possible, which is good for taxpayers, the economy and the environment, new contracts must lock in incentives for the private sector to grow revenue and run the railway safely and efficiently, while also enabling further reform.’
However, the Sunday Telegraph reported that the Government had rejected ‘industry proposals for operators to be incentivised to cut costs’ but instead is seeking to cut payments to TOCs from a level that allows a profit of 2% of operating costs to 1% until March 2022, which it said would push TOCs into the red once fixed overheads such as interest costs are included.
The paper said this has stoked suggestions that a full renationalisation is being orchestrated, as TOCs may be forced to relinquish loss-making franchises. It quoted an insider as saying: ‘There is now a big question mark over the role of the private sector on the railways.’
Matthew Gregory, chief executive of FirstGroup, told the paper: ‘Passenger volumes are not going to be anywhere near sufficient to go back to where we were before. So they are going to have to continue [with] the level of support to keep everybody moving.
‘The Government and the country needs [EMAs] to be extended for as long as it takes for the revenue to get back up to somewhere near prior levels. Otherwise you are going to have the rail industry effectively going bust and handed back.’