Rail 753: Rail in the north gets a bad deal

One of the great disappointments of rail privatisation is that it has never delivered the transparency of the economics of the railway that had been promised. That’s partly because of the sheer complexity but also because of a lack of will on the part of the industry to be open and transparent, despite recent efforts by the Office of Rail Regulation which have improved matters somewhat.

Therefore the Passenger Transport Executive Group (another organisation, like the Rail Delivery Group, that could do with a new name) has performed a great service by analysing the way that costs are allocated between various parts of the railway in a new document called A Heavy Load to Bear. While that may sound boring, it is in fact vital to understand why the railways in the North are disadvantaged in comparison with the rest of the network.

So do stay with me. A little bit of background is necessary. As with most industries, there are two types of costs in the railway: fixed and variable. In an industry with as much capital investment, invariably a lot of the costs are fixed. But it is not so simple. For example, on a line that is used by InterCity trains, maintenance is inevitably more expensive to ensure safe running. Freight lines, too, require extra expenditure to maintain the capacity to carry heavy loads.

Network Rail divides its £9bn per year cost allocation between five different categories – maintenance, operations, renewals, enhancements and financing costs – and apportions them to the three main passenger groups – Regional, Intercity and London & South East. Broadly, InterCity is allocated around a third of the cake while Regional rather less, around £2.6bn.

This cost allocation, which is largely based on train miles with every train being virtually treated the same, is in fact to a large extent notional. It is very hard to determine precisely – or even broadly – the cost of activity on the railway. And this is where the regions, especially the north, suffers. If costs are allocated by train mile, then a disproportionate amount will fall on light short trains that carry few passengers in relatively sparsely populated areas, as is the case with many in the Northern franchise.

It is not just maintenance where the burden seems to be placed unfairly on regional services. The cost of renewals, which can be thought of as large scale maintenance, is also allocated in a way that is biased towards the regions as the overall costs are allocated almost evenly between the three passenger groups. Signalling, too, is more expensive in heavily used areas of the network than in places where it is operated, say, by tokens or a few archaic colour-light signals.

Even on financing, the regions are getting a poor deal. According to the report, Although regional rail received only 20 per cent of new investment by Network Rail in 2012/13, regional rail contributed 30 per cent of fixed track access charges and was allocated 32 per cent of Network Rail’s overall financing costs.’ In other words, while most of the investment, as we know, is going on in London & the South East, much of the cost is being borne by the regional railways.

The report points out that it is well established that the weight and speed of trains increases wear and tear on the track. PTEG estimates that using Network Rail data, a diesel intercity causes 20 times more damage to the track than a Pacer train and a heavy coal train might result in 40-60 times more. Freight, by the way only pays marginal access charge costs but that is a story for another day, but that means regional railways, on which much of freight runs, are allocated a high proportion of its costs.

Why is this important? Because the costs allocated to each passenger group have to be recouped through a mixture of access charges and payments from the train operators boosted, where necessary, by government subsidy. So the North comes off looking bad because of the way these costs are allocated. Much of the £2.6bn comes from taxpayers since the trains are not heavily loaded and run relatively long distances. Fares, too, are cheap because otherwise people would use their cars as there is often little time difference between road and rail – in contrast to London & the South East where few would think of driving to central London from Guildford or Shenfield if they can avoid it.

PTEG therefore argues that while under the present system regional railways absorb 58 per cent of the subsidy of the railways because of the way that costs are allocated, a fairer distribution would mean they only would need 28 per cent. Politically, this would change the perception of the regional railways.

As I mentioned in my column in the previous issue, there is always pressure on lines in the north to justify themselves economically, in order that the overall subsidy can be reduced. However, if, as PTEG points out, the costs are being borne unfairly in the regions, then a thorough reappraisal of the economics of the railway should be carried out.

Indeed, this is precisely the type of analysis that should have been done as part of the McNulty report into the industry which led to the creation of the Rail Delivery Group but instead the political motivation behind that report meant instead that ‘subsidised’ railways were in the frame. McNulty merely emphasised how the industry was subsidised and where the money went, rather than providing an intelligent and authoritative analysis of the real economics of the railway. I am sure PTEG’s work will be challenged but simply by producing this report, it has laid down a challenge to those who would like to see services in the North cut back or simply remain underinvested.



Reopening cost mystery


I recently spoke at the annual general meeting of SENRUG – the South East Northumberland Rail User Group – which has long been campaigning to restart passenger services on the Ashington, Blyth & Tyne branch line currently used by freight. Many of the platforms and even stations are still there even though November 2nd this year will mark the 50th anniversary of the ending of passenger services.

The campaign has actually managed to get the costing of services into the franchise specification for Northern which is currently out for consultation and SENRUG is urging people to put in their tuppenworth to the process. However, Dennis Fancett, the chairman, told me he is mystified by the costs which Network Rail says would be required to reopen the line: ‘NR have quoted £60m but my suspicion is that they are trying to load the freight costs for the next 20 years onto the franchise’.

The trouble is that there is no explanation about how such figures are calculated. This backs up the point made in my main piece that there is a need for much more transparency and accountability about the economics of the railways. Of course there would be a need for subsidy in the early years, but the boost to what is a deprived region would be enormous. It is precisely one of the great benefits that railways can bring about.

Incidentally, travelling up to Newcastle and back on the East Coast was a great pleasure not so much because I happened to be in First Class – where the service was unobtrusive and excellent, and the sandwiches pretty good – but thanks to the company’s announcement policy. On both journeys, it was all human beings, with announcements by and large being restricted to useful information such as catering and next station. There were none of the maddening, infuriating, mind-numbing automatic announcements that you get on most Virgin trains (sometimes I suspect that the conductors turn them off’ about ‘if you see something suspicious, tell a member of staff or the police’ which can, on some journeys, be repeated up to 15 or 20 times. It makes working or even thinking or even daydreaming on trains quite impossible.

If Virgin really has that great customer-oriented ethos it boasts about, it is time to turn off the automatic and go back to the human. Given that East Coast is state-owned and subject to the same rules, Virgin can no longer hide behind the notion that it is legally required to create this barrage of meaningless and pointless sound.

I am amused to see that one frequent Virgin customer, Geraldine Brennan, a friend of mine, has decided to vent her spleen by writing a play about her experiences on its trains. Called Virgin Mary, it is a monologue about the vagaries of train travel and it the type of conversation one dreads to have to overhear. It’s on at The Grafton pub in Kentish Town (www.camdenfringe.com) at the end of this month and sounds like it should be a laugh.

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