Christian Wolmar: It's a tough ask for the rail companies to sell more tickets while hiking fares

Click to follow
The Independent Online

The meeting yesterday between the train operators and transport ministers was the first in what is likely to be an elaborate game of cat and mouse played against the backdrop of the recession.

Railways always do badly in economic downturns because they have fixed assets and costs while passenger numbers normally fall sharply as people cut work and leisure travel. And this is the first time the rail companies are faced with the possibility of fewer passengers since they took over from British Rail in the mid-1990s. During the last recession in the late 1980s, the then Tory government responded by cutting back on investment to British Rail while allowing the deficit to soar.

That option is no longer open to the Government. The private franchise companies have signed contracts of, mostly, seven years, and the investment funding paid to Network Rail, the infrastructure company, is fixed by a regulator. Private companies bear much of the risk of any loss of revenue.

It is bad news for them that they have signed increasingly bullish franchise contracts based on the assumption that revenue would grow at 3 to 5 per cent above inflation. To achieve this, they have to attract increasing numbers of passengers, and have to put up fares in real terms, as witnessed by the recent rises averaging over 6 per cent.

Keith Ludeman, the head of Go Ahead which has the majority stake in two of the big three south-of-the-Thames commuter services, has said the contracts are renegotiable. Ministers have stressed that the deals are immutable.

Ministers will be able to stick to that line if just a single company gets into trouble, but they would be in a very difficult position if several operators threatened to throw in the towel. That would risk the fragile edifice of rail franchising, and the industry has already been part-renationalised when Railtrack went bust in 2002 and was replaced by the not-for-profit Network Rail.

Christian Wolmar is the author of Fire and Steam, a history of the railways in Britain published by Atlantic, £8 99