Privatised railways to lose pounds 500m in subsidy

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Subsidy to the railways is being cut by a third in 15 months' time, according to an analysis of the Government's transport spending plans by an adviser to the Commons Transport Committee.

The figures, which have been accepted by the Department of Transport as accurate, imply either massive reductions in service or unrealistic cost savings.

They are revealed at the same time as the Government announced it is to spend pounds 10bn on Railtrack to improve the network.

In 1997/98 the railways will receive about pounds 1.36bn subsidy, compared with pounds 1.86bn during 1996/97 and the present year, a reduction of pounds 500m.

Earlier this year, the Transport Committee said that the extra subsidy required after privatisation was between pounds 500m and pounds 700m each year. This extra cash was needed to enable train operators to pay the newly imposed track-access charges to Railtrack, and the cost of leasing trains which previously had been owned by BR.

In the Government's response to the committee's report published last week, there was no reference to the fact that the extra subsidy is no longer required by 1997/98. This is when the financial support for the rail industry broadly returns to pre-privatisation level, with some extra money to the passenger transport authorities to pay for track charges to Railtrack. By 1997/98, virtually the whole industry is expected to be in private hands.

The Government's response merely said: "The private sector will be considering carefully what steps could be taken to attract more revenue", and "considerable efficiency improvements" are expected. However, both these amounts will flow to the franchise companies operating the railways,and not to the Government.

Richard Hope, a transport consultant who advises the committee, and who carried out the analysis, said the figures had very serious implications. "It seems highly improbable that franchisees could expect to achieve such large improvements in their finances, averaged over seven years, given capped fares, the rigidities of the timetabling process and the industrial muscle which Aslef, if not RMT, still command."

The franchisees' best potential way of cutting costs is through staff reductions but Mr Hope warns: "At least 90 per cent of Railtrack and Rosco [rolling stock company] payments would have to be made during a strike." He also feels that a sharp increase in revenue, dependent on higher than expected economic growth, is unlikely. He said: "Huge cuts would be necessary to achieve a pounds 500m reduction in a single year, bearing in mind redundancy payments and loss of revenue from discontinued services."

Mr Hope concludes that the explanation for the "irrational behaviour" of the Treasury in imposing this cut is a "combination of Treasury signalling its determination to get tough on rail subsidies after the election without understanding the financial rigidities of the monster it has created".

A spokesman for the Department of Transport said last night: "Ministers have agreed to this budget for 1997/98 but they have also guaranteed that the present level of services will be maintained. Privatisation will lead to considerable savings."