3 Rail subsidies
22. The estimated direct cost of the eight franchises
in 2006-07 was £811 million. By 2011-12, the number of subsidised
services will fall from six to three (Figure 2). The ability
of these eight train operators to deliver an overall premium,
instead of continuing subsidy, depends on revenue growth. The
two main causes of this revenue growth are increases in the volume
of passengers carried and increases in fares, together delivering
between 47% and 62% growth over a five year period. Despite the
economic downturn, the Department does not necessarily agree that
the rail industry faces a low growth situation. It still believes
that at some stage in the future it will only be subsidising the
track provider, Network Rail, and not the train operators.[37]Figure
2: Rail Franchises let 2005-2007 and premium or subsidy bid for
2011-12
| TRAIN OPERATOR
| FRANCHISE AREA OR NAME
| PARENT (s)
| START
| EXPIRY
| PREMIUM OR (SUBSIDY)
£ million
|
| Southeastern
| Integrated Kent Franchise
| Govia Ltd | Apr 061
| 2014 |
(65) |
| First Capital Connect
| Thameslink/ Great Northern
| FirstGroup plc | Apr 061
| 2015 |
126 |
| First Great Western
| Greater Western | FirstGroup plc
| Apr 061
| 2016 |
168 |
| Stagecoach South West Trains
| South Western | Stagecoach Group plc
| Feb 07
| 2017 |
140 |
| London Midland
| West Midlands | Govia Ltd
| Nov 07
| 2015 |
(162) |
| East Midlands Trains
| East Midlands | Stagecoach Group
| Nov 07
| 2015 |
46 |
| Cross Country
| New Cross Country |
Arriva Group | Nov 07
| 2016 |
(156) |
| National Express East Coast
| InterCity East Coast |
National Express Group plc |
Dec 07 |
2015 | 229
|
| OVERALL PREMIUM
| | 326
|
| Notes: 1 Franchises specified by the Strategic Rail Authority and let by the Department.
The franchise expiry dates assume that any relevant extension is earned. The amount of premium or subsidy contracted will change to reflect any change in track access charges payable to Network Rail.
|
Source: National Audit Office analysis
23. The Department uses a 'traffic light' system
to monitor the risks faced by the operators and has meetings scheduled
on a small number of franchises where the current signals are
at 'red'. The Department presents its tentative view at these
meetings, which the train operators may validate or modify.[38]
24. The Department intends to hold train operators
to their contract terms, although there is some scope for train
operators to cut back any services that are not core requirements
of the franchise. The scale of such contingency plans, however,
is unlikely to deal with the adverse conditions arising from the
present recession.[39]
If an operator fails, the Department holds performance bonds that
cover about 5% of the annual cost base of the company concerned.
The bonds have been issued by a number of different banks, mostly
based in the UK. At present, the Department reviews the nature
of these bank obligations monthly.[40]
25. The Department expects train operators to
cope with the current recession, but has remedies that have already
been tested in case a company is unable to fulfil its obligations.
For example, in the case of GNER, the Department paid the management
team to run the company for a period while the Department re-let
the contract.[41] In
this case, the performance bond covered the cost of re-letting
the contract. There is a risk of more than one franchise failing
at a time, and that one or more might have to be re-let at an
adverse price compared with the original transaction. The Department
would not be bound to intervene immediately unless the company
was incapable of managing the franchise.[42]
37 Qq 68-70 Back
38
Qq 2-6 Back
39
Qq 136-139 Back
40
Qq 106-113, 143-151 Back
41
Qq 139-140 Back
42
Qq 13, 141 Back
|
