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Taxpayer rail bill to hit £12bn as franchising shunted into the sidings

Oliver Gill
·3-min read
Trains
Trains

Ministers will plough up to £12bn of taxpayer cash into Britain's Covid-hit train network after franchising was scrapped, in the biggest shake-up of the railways for a quarter of a century.

Services will be bankrolled with public money for another 18 months after Transport Secretary Grant Shapps extended emergency measures to stave off collapse following a plunge in passenger numbers when the pandemic struck.

Franchising - introduced by then-Prime Minister John Major in 1996 when British Rail was privatised - will then be replaced with an outsourced or “concession” model, where companies are paid a fee to run services with the Treasury collecting fares. The plans were first revealed by the Telegraph earlier this month.

Experts said the changes could pave the way for dozens of poorly performing services to be axed in a bid to ease pressure on the public finances, raising the prospect of a repeat of  the brutal 1960s Beeching cuts. It also raises questions over Prime Minister Boris Johnson’s decision to continue with the £106bn HS2 project.

Rail use plunged to just 5pc of normal levels when the pandemic hit, destroying the franchise model where train firms pay the Government to run a route and make money from fares. Ministers were forced to step in and hand companies public money to operate unprofitable routes as a result.

Although rail travel has since recovered to 40pc of normal, Professor Tony Travers of the London School of Economics estimates that the state subsidy is likely to be between £7bn and £8bn for the year to March 2021 if the bailout of tube operator Transport for London is included. 

If passenger numbers reach 60-80pc of pre-Covid levels in the following fiscal year, the subsidy would fall to between £3bn and £4bn - meaning the industry bailout of operators could top £12bn.

Ministers acted quickly in March to introduce so-called Emergency Measures Agreements (EMAs) that guaranteed operators a profit in return for continuing to run services for key workers such as nurses and teachers.

The measures expired on Sunday and will be replaced by Emergency Recovery Management Agreements, which also guarantee a profit but at a lower percentage.

Mr Travers said: “This decision is effectively a repudiation of the entire privatisation under the Tories in the 1990s."

The former government adviser said the Treasury would soon face tough questions on how long it could continue running services at January 2020 levels, indicating network cuts could be on the horizon despite Whitehall efforts to encourage a shift to public transport as part of the fight to limit greenhouse gas emissions.

He added: “It is hard to see an argument for expanding services in this world.” 

Introducing concession-style agreements was signalled last year by Keith Williams, who was commissioned by Mr Shapps’ predecessor Chris Grayling to conduct a “root and branch” review of the railways in 2018.

Mr Williams’ findings were due to be released last autumn. They will be made public in a Government White Paper, which will be published when the course of the pandemic has become clearer.   

Mr Shapps said: “The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working.” 

Mr Williams said: “These new agreements represent the end of the complicated franchising system.”