Millions set for rail merry-go-round
Sunday 13 March 1994
The bad news, however, is not a penny of the extra money will generate any new services or go to help keep fares down. This is because of the new financial system to create rail privatisation. It is necessary to ensure that costs can be more clearly identified while the railway is being prepared for privatisation and dismembered into 25 train operating companies, three rolling stock leasing companies, and Railtrack, responsible for the track.
The plan is for all the train operating companies to operate as 'shadow franchises' to enable potential private investors to assess their economic performance. Then they will be offered to the private sector for franchising starting with the Gatwick Express early in 1995.
However, one crucial decision by the Treasury and transport ministers has raised a large question mark over whether the private sector will ever be attracted into the industry. Railtrack has to make a rate of return of 5.6 per cent on its assets, valued at pounds 6.5bn. This has meant that the bill for track charges for the operating companies has increased enormously.
Railtrack's 'profit' comes out of the increased subsidy that will be paid to the train operating companies. The rest of the extra subsidy will go towards paying for the rolling stock. In effect, the new system is a sophisticated merry-go- round of government cash which - hold on to your hats - goes as follows: the Treasury pays extra subsidy to the Department of Transport, which hands it over to the new Franchising Director, Roger Salmon. Mr Salmon allocates it between the 25 operating companies which then pay it in increased track charges to Railtrack, which in turn pays it back to the Treasury.
Ministers insist that this is notional and will not affect the operation of the railway. But senior BR staff say it will increase the price of rail travel.
On InterCity's East Coast main line, the track charges have been set at pounds 169.4m, which covers only the use of the infrastructure and electricity. The line operates just under 100 InterCity trains per day and the track charges work out at pounds 4,300 per train - about pounds 8 per seat per journey.
Contrast this with a coach which travels from London to Newcastle, which pays pounds 354 per year in various taxes plus around pounds 40 fuel tax on 30 gallons of fuel. With 50 seats, that works out at less than pounds 1 per seat.
The East Coast main line is BR's pride and joy. This year it is expected to make an operating profit of nearly pounds 40m. Under the new regime, according to calculations by Roger Ford, technical editor of Modern Railways, it will make a loss of pounds 70m.
Last week, the Department of Transport revealed that British Rail privatisation will have cost pounds 160m by the end of March 1995. Of this, pounds 56m has been spent by BR this year. It expects to spend a further pounds 81m next year, including pounds 30m on reorganising its financial systems. In addition, the Department of Transport is spending pounds 12m in each of those two years on consultants' fees.
Brian Wilson, Labour's transport spokesman, said: 'It would have been cheaper to leave well alone. The railway will run, but will it run any better for all this effort?'
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