March 9, 2012 • 1:44 pm

“When it was one industry – British Rail – it was subsidised to the tune of a billion to a billion-and-a-half in today’s money and at the moment it’s getting four billion pounds of taxpayers’ money”

Christian Wolmar, BBC Today Programme, 8 March 2012

During a Today Programme debate on Thursday on rail reform, transport expert Christian Wolmar claimed that the current system is subsidised to the tune of £4 billion – roughly four times greater than the comparable cost under British Rail – blaming the problem on the fragmentation of the railway network in the era of privatisation.

Reducing the level of government expenditure on the rail industry was identified as one of the key objectives of privatisation according to the McNulty Report into the network’s efficiency.

So have costs gone off the rails? Full Fact took a look.

Analysis

Christian Wolmar does not say in his interview where his figures come from, but Sir Roy McNulty’s report released in May last year does give details about the relative levels of state and private funding. As the graph below demonstrates, both revenue streams have grown in real terms since privatisation:

In addition, the table below shows that, in the years leading up to the privatisation of the railways – which began in earnest in 1994 – British Rail was supported by government money to the tune of between £988 million and £1.6 billion. This averages out at £1.14 billion, within the £1bn and £1.5bn range that Christian Wolmar spoke of.

It also shows that in the last available year of figures on government subsidy (2010-11), Network Rail was subsidised by the taxpayer at a cost of £3.96 billion. So, Christian Wolmar is correct to say that the price of supporting privatised rail travel is much greater today than it was before the dissolution of British Rail.

However, subsidies do not stand alone in funding the train networks. They are determined in relation to the income the network makes from and spends on its passengers. In recent years the number of people using the rail network has increased.

Therefore, it is arguably fairer to compare subsidies from both periods in time as a proportion of the total revenue accrued by the networks.

The earliest available Yearbook (2005-2006) has figures on passenger revenue going back to 1991-92. If we add those to the latest Yearbook’s figures it produces the following table:

Comparing the level of subsidy with passenger revenue gives a more mixed outlook:

This picture shows that, in the last few years of British Rail’s existence, the proportion of government subsidy to passenger revenue was between 40 and 50 per cent. But post-privatisation, it fluctuated greatly between 26.2 per cent in 2000-01 to 55.7 per cent in 2006-07.

However the proportion of rail spending funded by the state did seem to be decline between 1994 and the turn of the millennium, before it began to rise again.

This may in no small part be due to the decision taken to increase funding in the wake of the collapse of Railtrack in 2002, in order to put its successor, Network Rail, on a “secure financial footing” in the words of the then Transport Secretary.

In 2003 the Rail Regulator approved an increase in subsidies via the Access Charge Review, a which determines the limits on the amount of money that Network Rail can receive from the government over a five year period. It also allowed for some revenue being reprofiled from 2004-05 and 2005-06 to later years, hence the spike in 2006-07.

It is worth noting that one of the things required of Network Rail as a condition of the increased funding was an improvement in efficiencies over the period, and indeed the levels has been falling since it’s peak in 2006/07. So while the proportion of funding provided by the taxpayer has been around or above the level that it was at before the network was privatised, this may have been a temporary blip.

Conclusion

Christian Wolmar is definitely right to point out that the level of taxpayer subsidy to the rail network currently stands at several times the real terms equivalent before privatisation. Indeed the figures show that in some years, Network Rail has received more money from taxpayers than from passengers post-privatisation.

However the current level of Government investment in the railways may owe much to the ongoing fallout from privatisation, in particular the collapse of Railtrack in 2002, which in turn may mean that subsidies could fall back in the future. 

Update (23 October 2012)

The latest figures from the Office for Rail Regulation show that government subsidies to the rail industry totalled £3.901 billion in 2011/12, or 35% of total industry revenue. Total passenger revenue was £7,229 for the same year, or 65% of total industry revenue.

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