So the privatised train system isn’t subsidised then?

Britain’s railways are back in the black for the first time since privatisation was set in motion 20 years ago, figures show.

Train companies collectively pay more to the Government than they receive in subsidies to operate the railways, although some individual lines do remain loss-making.

So there’s cross subsidy: some lines lose money, others make it. But there’s not a subsidy in general, it’s just that those cross subsidies flow through government.

An interesting question would be, well, what were the subsidies before privatisation? If any?

24 thoughts on “So the privatised train system isn’t subsidised then?”

  1. What does “pay more to the Government” actually mean? It’s not clear from the article. If it just (or mostly) means tax receipts, then the industry is pretty much still being subsidised. If it’s referring only to money paid by train operators back into a rail cross-subsidy pot, then fair enough.

  2. yes that’s right subsidies pay for things the nationalizers say we should have, like stations and infrastructure.

  3. This the problem of trying to tease out the true state of rail finances from all the partial views and convoluted franchise structure. Most of the TOCs are in revenue support so to say they are in the black when they wouldn’t be able to operate without that support is, if not meaningless, then at least misleading. Apparently the same would be true of East Coast Rail were it a franchise which suggests that the view that it is better off in state hands is also misleading, there’s still a subsidy whoever is running it. I note that that article claims that ECR has been re-nationalised, it hasn’t. slack journalism again.
    The question raised by Luis Enrique as to whether Network Rail gets a subsidy also rather depends on how you define the word. NR gets a block grant from the government and authority to borrow according to the requirements of the five year control period. This is recouped mainly by charging the TOCs for track access, so there’s up front funding, which is not a subsidy in my book but maybe an economist would disagree. The TOCs more or less work the other way round, in that they have to pay a premium to the government, in addition to the NR charges, which increases towards the end of the franchise period, a source of much of the woe that TOCs often find themselves in. Rolling stock is financed separately and if anything is even more of a Mares Nest

    I’m not going to attempt to unravel all that but I will recommend reading someone who can and does. Roger Ford of Modern Railways, the go to guy with a spread sheet for anyone who wants to try and make sense of the Byzantine world of railway finances. It would be interesting to know what he makes of the ATOC claim, I suspect it doesn’t stack up. If you can find it he has also written about the question of whether BR received less in subsidy than the privatised railway and exploded the myth that BR suffered from decades of underinvestment. I’m afraid I don’t have any links.

  4. The railways are still massively subsidized, and the Telegraph has, as usual, failed to understand the numbers. Outline figures here, including a chart going back to before privatization.

    Total subsidy for 2012-13: £5.1bn
    Subsidy net of capital expenditure: £3.5bn (the capital expenditure is mostly on Crossrail)
    Subsidy to Network Rail: £3.8bn
    Net income from TOCs and PTEs: £0.3bn (more accurately £256m, as reported )

    What’s happening is that the TOCs are getting the infrastructure at a huge discount. It’s wildly misleading to summarize this as “British railways are in the black”.

  5. Tim A is talking nonsense. L&CR doesn’t exist and hasn’t since HS1 was completed, HS1 is managed by Network Rail, and carries services by Eurostar (who don’t receive a subsidy) and Southern (who sometimes do). London Transport also doesn’t exist and hasn’t for 15 years, although obviously TfL is heavily subsidised because the ability to go from place to place in London rather than not is generally considered beneficial.

    More generally, Luis is right. There are four main ways in which (non-TfL) rail in the UK is funded:
    1) farebox revenue
    2) explicit DfT subsidies to TOCs
    3) explicit DfT grants to Network Rail
    4) borrowing by Network Rail with an implicit government guarantee.

    To offset 2, some TOCs pay explicit premiums to the DfT, out of farebox revenue. This depends on the profile of the TOC (ie “runs trains in Wales” = subsidised; “long-haul commuting into London” = pays a premium). The point of this article is that those explicit premiums now exceed the explicit subsidies.

    Thornavis’s take is approximately how things used to work, but element 3 (explicit direct grants to Network Rail) are now the main way in which rail subsidy occurs.

    The broader point to bear in mind here is that net government rail subsidy is now paid solely to Network Rail, because the rail system is a state-controlled one with operations outsourced to private agencies (in the same way that Veolia empty the bins, but the council determines bin-emptying policy).

    So when lefties whinge that we should renationalise the trains, they’re basically talking nonsense, because the system is already state-controlled.

  6. PaulB: yup, those figures are about right, but claiming that the companies which are contracted to provide services defined by the DfT in exchange for a % margin are “getting the infrastructure at a huge discount” is silly. The DfT pays them a cut, is all.

  7. The ORR says the current rail subsidy is £5.1Billion, I leave others to work out how that compares to the final years of BR.

    john b, thanks for the clarification, I’m a bit behind the curve these days since I retired from NR.

  8. john b: there are various possible perspectives on who is running the railways. Looking at things from the perspective of the article one is commenting on is not “silly”. Please grow up.

  9. It is worth bearing in mind that passenger numbers have increased substantially since the railways were privatised. Unfortunately, since passenger levels are focused on commuting hours, this has required major investment to increase capacity.

    Of course, if the government just abolished stamp duty, people might move closer to their place of work and reduce the amount of commuting…

  10. DB

    If you’re implying that the increase has been due to privatisation that is probably not the case, the booming economy of the immediate post privatisation period is more likely to be the cause. In fact it’s arguable and plausibly so, that there has been no real increase in investment and that the mis-management of much infrastructure and rolling stock spending has negated much of that investment. The West Coast Main Line upgrade being perhaps the worst example, BR managed to electrify the East Coast main line on time and to budget.

    Although as john b points out the railways were never really privatised anyway, so the whole argument about whether railways are better or worse for being in the private sector is a bit pointless.

  11. I wasn’t implying that privatisation has caused a rise in rail travellers: although my experience of train travel is rather better and safer than it used to be, so is my experience of car travel.

    I suspect the increased levels of population, employment and wealth have driven demand for all forms of transport. Congestion and the government’s determination to tax motorists mean that train travel has been a particular beneficiary.

    Nonetheless, if one wishes to compare the levels of subsidy under BR and today, it is likely to be better to compare subsidies per passenger mile than a simple gross number.

    Agree entirely that the idea of “privatisation” can be a bit of a misnomer – it is civil servants and politicians that determine just about everything about the railways. TOCs have very little freedom to make commercial decisions (and under revenue support, little incentive either!). John Prescott’s ludicrous intervention in the micromanagement of railway safety cost the industry years worth of development.

  12. @ Thornavis
    Well, as a commuter for well over quarter of a century I think it very probably IS the case that the rise in passenger numbers is due to privatisation. The quality of service in the last years of British Rail was appalling – dirty 1930s rolling stock, frequent cancellations, habitual delays, passengers left on the platform because no more could squeeze onto the train, stations without toilets or toilets closed, passengers injured by trains ignored by BR staff and rescued by fellow-passengers … I could go on
    There has been a massive improvement since 1993 with modern trains, a more frequent service, longer trains accommodating more passengers, regular cleaning of trains and toilets, incentives to the train operators to arrive on or near schedule and compensation for excessive delays …,
    I recall several occasions under British Rail that the delay exceeded the scheduled journey time. I once wrote a letter of complaint because that week my fastest journey home had been taking a tube to Oakwood and running the rest of the way: BR didn’t even answer

  13. @ DB

    Stamp duty has got bog-all to do with whether or not people live near to work. The difference in house prices between two ends of a commuter route are far greater than the bit that the govt snaffles. My home in the midlands would cost three times as much in London.

    Further, moving stamp duty one way or another would, in any case, just shift property prices the other way to ‘compensate’

  14. Rubbish. A transaction tax inhibits the efficient allocation of resources.

    The choice isn’t a binary one between living somewhere cheap and somewhere expensive. A transaction tax – particularly one as stupid as stamp duty, where the higher rates apply to ALL the consideration – naturally inhibits people from moving up or down the scale.

    If your concern is that returns are “unfairly” allocated to existing owners of property then abolishing stamp duty and imposing CGT on primary residences would make perfect sense.

  15. @ DB

    The way it’s calculated is daft, yes. And that probably distorts things around the thresholds. I’d also accept that the cashflow side of things can be an issue (where a lender won’t cover the stamp duty, it’s another slab of money that needs to be found).

    However, if a property costs £300k + £9k stamp duty, if you abolish the stamp duty then all that happens is that the price of the property rises to £309k. This we know.

    Yes, allocation of resources would be a bit better.. but it’s an absurdly tiny part of ‘why people commute’. That’s all about changes in employment patterns and specialisation, property prices in cities (especially the south east), improvements to the commuting experience etc etc.

  16. There is no “probably” about the distortion around stamp duty thresholds – you can see it in the data for house prices. And it would be somewhat odd to discern distortions in prices without any distortion in the behaviour of buyers and sellers wouldn’t it?

    You appear to be considering only one side of the equation. The bulk of people buying houses are also selling a house. Therefore, it isn’t whether the overall price is 300k or 309k that is the issue – it is that the 9k is a leakage. In the context of 1.5% of agency fees and a grand or two or moving fees, it is a bloody significant barrier, particularly when you consider that any uplift in salary from changing jobs is likely to be taxed at 40% or more.

  17. TTG and DB: c’mon guys, you’re both wrong. 🙂

    TTG is wrong that prices would rise to cover the entire saving from scrapping stamp duty. Stamp duties are probably among the most inefficient taxes yet devised by a civil servant, but even so the deadweight cost of property stamp duty is not going to be 100%.

    DB, on the other hand, cannot be correct that stamp duty is the only thing preventing vast amount of the commuting population from moving nearer to their place of work.

    As TTG says, there are property prices to consider. We can add more things. Depending on the properties and locations, moving and legal costs could be of a similar magnitude to stamp duty, and they would not be eliminated. Those are just the financial considerations. Individual circumstances are also important: a couple may be living between their workplaces [1], families may not want to disrupt children’s education, people may feel settled in a location with strong social bonds, and some may prefer to commute than to go through uncertainty and upheaval by moving.

    [1] Here, by the way, is a partial explanation for the secular rise in commuting. As is noted by Tim from time to time, the employment rate of mothers in work has risen substantially since the mid-twentieth century. This social change has had significant effects, among which has to be an increase in the number of couples whose workplaces are in different cities and a consequent increase in commuting.

  18. @ DB

    “You appear to be considering only one side of the equation.”

    Yes. That’s a fair criticism.

    I’m not sure on your point about distortions though. Sure, the £125k threshold means lots of properties get sold at £124k, lots get sold at £130k, but not a lot get sold in between.. but we’re talking about whether transactions happen at all.

    @ PW

    Yes. And it’s all those other factors that make up the main point I’m trying to make. Amongst all the factors that determine which end of a railway line someone lives at, I don’t see how stamp duty could even touch the sides.

  19. @john77

    I could give you just as many examples of poor service and chaotic operating under privatisation, including my own working experience as a signalman when we were very often completely in the dark about what we were expected to do. This was due both to a lack of coordination between NR and the TOC and the inadequacies of NR’s own organisation. Neither of our experiences really says much though about whether private or government control is better, rather that incompetence and poorly thought out organisation are common to both.

    I’m baffled by your claim the there was still carriage stock from the 1930s working in the last years of BR. I’d be interested to know where that was and what stock you are referring too.

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