September 2012 Railway finances: March hare territory

01 June 2013

People think I’m exaggerating when I talk about the ‘lunacy’ of how the railway is financed. But I’m not. I am reporting facts.


I was leafing through Stagecoach’s accounts the other day when I noticed this sentence: ‘South West Trains, which makes premium payments to the DfT, continues to receive revenue support.’ So SWT gives money to the Treasury as payment for running the franchise. And then the Treasury gives money to SWT because the company hasn’t made enough profit.


In fact, as a group, last year Stagecoach gave the Treasury, as ‘franchise premia’, a total of £407.5 million. And then the Treasury gave them £124.4 million in rail revenue support. It looks more like a late-night poker game than a national financing arrangement.


And rail freight financing is by no means outdone in the lunacy stakes. The rail regulator ORR is proposing ‘fair’ new charges to ensure that rail freight covers all the costs that would have been avoided if these trains had not used the infrastructure. This sounds reasonable – until you consider that road haulage does nothing of the sort.


Rail freight has seven separate charges while road haulage only pays two - road tax and fuel duty. Rail freight pays on the basis of distance travelled, a concept constantly rejected for road. Heavy Goods Vehicles pay between one to two thirds of the costs they impose on society in terms of damage to roads. This is ignored on the motorway, but not on the track.


So the rail regulator’s way of making something ‘fair’ is to disadvantage rail. This is remarkable, given that he is supposed to be on our side. One of the ORR’s principle roles is ‘helping the mainline railway meet the long-term challenges’. The Department for Transport confirmed this year that this includes ‘to continue to support the growth of freight services’.


So the ORR wants to ensure rail freight’s success by proposing crippling charges that hand the advantage to road haulage.


So perhaps I’m wrong. Maybe ‘lunacy’ understates the case.

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