Analysis: Money talks as Whitehall seeks to cut subsidies

THE past 48 hours have dispelled any lingering doubt that the government’s approach to the railways is focused on cutting costs.

The day after news of inflation-busting fare rises comes the news that Aberdeen-based FirstGroup has won out over incumbent Virgin Trains for the right to the West Coast Main Line franchise for the next 14 years.

First has offered about 
£700 million more in payments to the Treasury than its rival bidder over the life of the contract, and money talks.

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Hearing that his Virgin Trains subsidiary had lost its only rail franchise, Sir Richard Branson was unequivocal in his condemnation of the government’s handling of the tendering process. He has a point. Several franchises have found themselves in severe financial trouble, most notably the East Coast Main Line, which is still in public ownership, three years after National Express handed back the keys, having made a hugely over-ambitious bid.

That Branson has twice lost out on East Coast – once to National Express, and before that to GNER, which also hit the financial rocks – explains the depth of his anger.

FirstGroup itself, which is the UK’s largest rail operator, also has a mixed record: ScotRail and Trans-Pennine Express are regarded as generally well-run operations, but its stewardship of Great Western and First Capital Connect have been dogged by operational problems and poor customer feedback.

Whitehall’s main objective is to reduce the public subsidy required to run the railways, and to shift the balance of funding from the taxpayer to the passenger. This perhaps explains why First’s gung-ho growth predictions were so appealing to the mandarins.

But the political fallout from the failure of a First-run West Coast to meet its targets would renew calls to scrap the increasingly-expensive franchising system.

Plus there’s one final twist – the new franchise ends in 2026, when the initial phase of High Speed 2 is due to open. Government needs a narrative about strong growth on West Coast, otherwise the case for its showpiece project evaporates.

• Iain Docherty is professor of public policy and governance at Glasgow University