£7 Billion COVID Bailout for Private Train FirmsIncludes £70 Million ‘Management Fees’
Private rail operators are still making millions of pounds, despite the difficulties caused by the Coronavirus pandemic, reports Sam Bright
The Government has bailed-out private train operators to the tune of £7.3 billion so far during the Coronavirus pandemic, with more than £70 million awarded to companies in the form of “management fees” that can be paid to shareholders.
At the onset of the COVID-19 crisis last March, the Government announced that it was suspending the pre-existing framework agreements for Britain’s railways – whereby private companies run certain services for a defined period of time. Instead, the Government has taken on the costs of running the railways via “operational support” payments, while retaining the revenues.
It has been estimated that rail passenger numbers have fallen by as much as 70% due to COVID-related travel restrictions.
Newly-released data from the Department for Transport (DfT) shows that, from March 2020 to February this year, the Government paid out more than £7.3 billion in operational support to private train operators. The total bill has ranged from £550 million to £710 million a month.
In addition to this day-to-day cost of funding rail services, more than £70 million was paid to the 11 eligible private operators in the form of “management fees” between March 2020 and September 2020. These management fees are payments to the companies for running the services funded by the taxpayer. They represent, in the words of the DfT, earnings that can, “in due course, and subject to conditions… be passed on to shareholders”.
These conditions include the payment of corporation tax and the submission of audited accounts.
The firms also added a further £18.5 million in the form of performance-related payments – rewards for maintaining standards in relation to operational performance, customer experience, and efficiency – during the period from March to September.
“New agreements with operators, which took effect in September, have a lower maximum operator fee and demand even higher standards to be met to earn this fee,” a DfT spokesperson told Byline Times.
These temporary measures are expected to end for all private operators by March 2022 at the latest. The Government is set to this week release its proposal for the future of rail services in the UK – including the expected merger of track and trains under a new Great British Railways brand.
However, the new system is still anticipated to retain a role for private operators, despite the public failings of rail franchising. Indeed, the current system has experienced so much turmoil in recent years that two of the operators – Virgin Trains East Coast and Northern – eventually had to be placed under state control.
Until a new regime is implemented, the Government is set up to prop-up the private operators, taking on the financial burden for reduced passenger numbers and revenues, while paying the firms a stipend for their services.
Speaking last September about the interim arrangements, Shadow Rail Minister Tanmanjeet Singh Dhesi said that “taxpayers are set to continue paying hundreds of millions of pounds in profit to private rail companies to run the network. This is completely unacceptable”.
Meanwhile, former National Union of Rail, Maritime and Transport Workers (RMT) general secretary Mick Cash added: “COVID-19 has proved that the private rail companies are a waste of time and money and have no place in a railway that’s fit for the future. It’s time to cut out the middle-man.”
The DfT spokesperson told Byline Times: “Without these agreements, many operators would have faced imminent financial collapse, causing chaos across the rail industry and further costs passed onto the taxpayer. Instead, these agreements kept vital services running for key workers and protected jobs in the industry.”
Cash’s successor at RMT, Mick Lynch, has warned against any cuts that might be imposed on the industry and has raised his doubts about the reforms due to be announced this week.
“We know full well that the industry is preparing for a tsunami of cuts,” he told the Guardian. “All the signals are that the Shapps/Williams review will be stuck in the past and wedded to the failure of privatisation. It’s the same meat with different gravy.”