Rail firms profiteering from taxpayer, says report

BRITAIN’S trains should be run by non-profit making firms like track owner Network Rail because current operators are profiteering from the system, Manchester University academics argued today.

Professor Williams said: 'It would make sense to stop the extraction from the public purse by abolishing private train operating companies'. Picture: PA

They claimed Virgin Trains, which runs cross-Border services, had paid £460 million to shareholders after receiving nearly £2 billion from the UK Government.

Professor Karel Williams said: “The train operators do not confront the issue of why we need private train operators who receive large subsidies, invest almost no capital and take very little risk, because they can and do walk away from loss making franchises with modest penalties and no claw back.

“The financial outcome is that train operators return on capital employed is 121.6 per cent - an annual return of £1.21 for every £1 invested. So why is the taxpayer licensing this level of returns?

“We say it would make sense to stop the extraction from the public purse by abolishing the private train operating companies.

“We need to make plans to integrate train and track operations within a new not-for-profit company.”

The report said the train operators’ rate of return compared to Network Rail’s of just 1.34 per cent.

Aberdeen-based FirstGroup’s five rail franchises, which include ScotRail, made a combined £63.2m operating profit in the year to March.

The Conceit of Enterprise report also questioned train operators’ claims that their marketing effort, rather than economic growth, was responsible for increasing passenger numbers.

Deputy First Minister Nicola Sturgeon this week praised ScotRail for boosting its passenger total, in a response to a report that Scotland’s main train operator had commissioned into its own impact on the Scottish economy.

Ms Sturgeon said: “I’m pleased to see ScotRail’s success in encouraging more and more people to use the railways in Scotland, with 83.3 million journeys being made on its services last year.”

A spokesman for Virgin Trains said: “It is extremely disappointing the report’s authors choose to overlook all the positives that have been achieved on the west coast main line over the course of the current franchise.

“In 1997, Virgin Trains inherited a dilapidated service in desperate need of investment. With [UK] Government support and the energy and commitment of our staff, the line has been transformed. More trains, faster journey times and a record 92 per cent overall level of customer satisfaction.

“Passenger numbers have almost doubled to over 31m each year, the net result being a positive contribution to the Exchequer which in 2011-12 amounted to £160m.

“And of course the taxpayer will continue to benefit for many years to come. The next franchise period expected to net the government in the region of £5bn and thus a key contributor to the public purse. That has to be good news.”

A ScotRail spokesman said: “A major study by the respected Fraser of Allander Institute this week revealed a wide range of improvements behind the 33 per cent rise in passenger journeys since FirstGroup won the franchise in 2004.

“These include punctuality rising from 83.1 per cent to 93 per cent despite hundreds more daily services – and customer satisfaction ratings of 90 per cent, some eight points higher than the UK average for train operators.”

A Scottish Government spokeswoman said: “Under the current ScotRail franchise, we are improving and extending the network, building new stations, doing what we can to keep fares down, providing wi-fi and other modern facilities and, as a result, passenger numbers have increased to record levels.”