So all is rosy in the rail garden. That is certainly the message in the Office of Rail Regulation’s report on the industry’s finances for 2012/3.
Even to an old curmudgeon like me, paid to give official mouthpieces and politicians a hard time, and pick holes in press releases, there is much to celebrate. The industry continues to grow with a rise in fares income of 3.6 per cent in the year which ended on March 31 2013 and this growth has continued since then. Indeed, passenger numbers have increased by 10 per cent in the past three years and freight by a remarkable 30 per cent in that time.
Like most commentators, I have been surprised at the way the industry continued to grow during the recession and how, apart from the year immediately after the 2008 crisis, passengers numbers have kept on growing. There are numerous reasons for this such as the fact that the recession has had little impact on London and the south east, which accounts for such a high proportion of rail journeys and where employment levels have continued to grow.
Nevertheless, the impressive growth is a reflection of rail’s importance to the economy and its success in increasing its market share of journeys in key markets such as intercity travel and commuting. It is, too, the result of something of a virtuous circle. There has been – and continues to be – substantial investment in the industry which in turn attracts more passengers.
The Guardian runs occasional short editorials headlined simply ‘in praise of…’ and sometimes focus on characters who normally would be pilloried in our most illustrious liberal newspaper. In this vein, I must (sticks in gullet) compliment the Chancellor, George Osborne, for sticking with, and indeed supporting strongly, the railways. The recent generous settlement for the next five year Network Rail control period which started on April 1 would not have happened without Treasury support.
Mr Osborne ‘gets’ railways. He recognises them as a key factor in economic growth and understands that they bring about benefits far beyond what they collect in the fare box. Consequently, he has supported the overall investment programme and been a strong advocate behind the scenes in support of various big schemes, ranging from HS2 and the Northern Line extension to Battersea, to East –West rail and the Northern hub. The railway, consequently, has friends in high places.
However – and there had to be a ‘however’ – Osborne and the government view the railway almost entirely in terms of its impact on the economy. So the ‘biggest investment in rail since the Victorian age’ is all about boosting the economy. There is no room in his world view for a social railway, and that is why, too, before we get too lovey-dovey about Osborne, we have to note that investment in roads programme is actually bigger than spending on rail.
Moreover, much of the rail investment is being paid for by passengers rather than taxpayers. The figures from the ORR show that £7.7bn was collected in fares out of total turnover of £12.3bn (irrelevant fact: Tesco has a turnover of £63.5bn, five times the size of the railways) which means the target set by the Labour government of making passengers contribute two-thirds of the cost of the railway has almost been reached.
Actually that target has been surpassed easily if a proper analysis of the railway’s economics is made. The passenger income does not include the £1.3bn of ‘other income’ which is largely from retail sales at stations which largely comes from those travelling on the railway. This is not, as Railfuture has pointed out, how Ryanair, which often virtually gives its flights away so that it can sell overpriced food on board, would look at it. This in fact brings the industry close to the three quarters contribution from passengers that Osborne would like to see.
Yet, the target is used as justification for the high fares policy although it is noticeable that the above inflation rises are becoming so unpopular that the government has retreated from its original aim of RPI plus 3 per cent which it certainly will not revive in an election year! Delve deeper in the figures and there are further anomalies that paint a picture that is more negative than it should be. Most notably, the £4bn government contribution (interestingly unchanged from the previous year) includes £1.5bn of interest payments for Network Rail’s debt. This, of course, is only going to get worse with the debt expected to reach £50bn which implies payments of perhaps £2.5bn even with relatively low interest rates. That does appear to be unsustainable.
There is, too, £1.8bn of depreciation included in the figures. Therefore today’s passengers are paying for investment in tomorrow’s railway, not something that motorists have to do (note that the idea that ‘road tax’ and ‘fuel tax’ cover all the real costs of the roads, including policing and accidents, is a fallacy perpetrated by the roads lobby). Indeed, a fair assessment of passenger would therefore remove all the cost of the investment programme and so we are pretty close to a situation where passengers are paying for virtually all the day to day operation of the railways.
This is daft. As has been reiterated many times in this magazine, the railways provide all kinds of social benefits that are not reflected in the fare box. Penalising them by forcing passengers to pay the full cost of their operation is actually far more a distortion of economics than the subsidy which critics of the industry suggest should be reduced or even cut entirely.
The most worrying revelation in the figures is that they show that the industry is failing to improve its productivity or to reduce its costs. Network Rail’s costs rose in real terms (i.e. discounting inflation) by 2.3 per cent in 2012/3, a disappointing figure resulting from increased power prices and higher compensation payments to operators for unplanned engineering work.
This leaves a big gap in the railway’s economics. These figures show that the savings advocated in Sir Roy McNulty’s deeply flawed report have simply not materialised. An inside source revealed to me that around £350m savings have to be found in the next year but it is difficult to see how this can be achieved given that such a high proportion of the railway’s expenditure is fixed such as rolling stock leasing costs, interest payments and staffing. It is really only through new franchise allocations that such large scale savings could be made but the current trend of offering short term extensions or single bidder deals does not allow for such cost reductions to be made. Therefore amidst all the good news, there is a real concern. Given the unfair way that the railway’s economics are presented, this represents a real danger to the future of the industry. A new government, possibly with a Chancellor less supportive of the railways than Osborne, could point to these figures and suggest that the railways are a drain on public finances. In fact, nothing is further from the truth.
Welsh Highland triumph
During my Easter weekend break in North Wales, I was given the chance of a footplate ride on the narrow gauge Welsh Highland Railway in one of the Beyer Garratts that were brought over from South Africa to run the service. Regular readers will know that I am not a steam romantic but it was impossible not to be excited by such a wonderful opportunity.
The Welsh Highland is actually arguably a more attractive railway than the Ffestiniog which was restored much earlier and runs through mainly forest. The Welsh Highland, in contrast, offers spectacular views of the mountains from the reclaimed land outside Porthmadog and then climbs up to their lower reaches through a series of S bends. Thanks to work over this winter, the Welsh Highland and the Ffestiniog have their own platforms at Porthmadog, enabling through running (only possible for the Ffestiniog stock as the Welsh Highland has a large loading gauge and its stock cannot get beyond the works at Boston Lodge) and much more efficient working.
The work of restoring the 25 mile line (actually the Welsh Highland never existed in its present alignment as a single railway as it did not originally run through to Caernarvon) over a 15 year period is celebrated in a pictorial history Rheilffordd Eryri produced by the railway which shows the remarkable work carried out principally by volunteers with the help of the odd lottery grant. If anything conveys the enthusiasm and affection for railways, and their ability to bring together communities, it is the photographs in this booklet showing people who travelled across the country to spend time rebuilding the line, carrying out arduous and exhausting tasks in their spare time. One cannot quite imagine all these volunteers using up their spare time to build a road!