Government extends TOC support until March 2022
THE Government is preparing for a much longer period of financial support for TOCs once the six-month Emergency Measures Agreements (EMAs) expire on September 20.
Passenger numbers have only risen slowly and the Department for Transport is still ordering train operators to maintain social distancing and discourage travel by train.
The new agreements are expected to last for 18 months, taking TOC support to two years.
The move will come as little surprise to those within the industry who have been indicating a return to ‘normality’ following the Covid-19 pandemic is likely to be protracted.
The decision was expected to be announced before the Parliamentary summer recess, which began on July 22, but this didn’t happen, and it is reported ‘tailored’ agreements are being created for each TOC rather than a standard agreement for all.
Uncertainty
This will reflect the differing types of passenger across the operators and create further uncertainty over future demand.
Industry insiders believe that in the medium-term passenger volumes could settle at around 75% of pre-Covid levels, but this is likely to result in some service cuts at a number of operators.
The 18-month deals are being described as Emergency Remedial Measures Agreement (ERMA) contracts, with Treasury support expected to fall away as passenger income rises.
Working out how Treasury support may be gradually reduced will be difficult given the high level of uncertainty over future passenger numbers.
Adding to the problems are any possible subsequent Covid spikes during the winter, and the fine margins in management fees being paid to TOCs, equivalent to an average 2% profit margin on pre-pandemic operating costs.
Calculations by industry experts suggest that to return to pre-Covid numbers by the spring of 2022 would require monthly passenger growth roughly five times the best annual growth levels achieved in recent years, a target that is unlikely to be met once job losses and changes in working practices stabilise.
DfT data
The introduction of new ‘parttime’ season tickets at a number of operators and indications others are proposing similar products suggests a permanent reduction in commuting is expected.
The DfT is expected to publish more detailed data which will show the level of support currently being provided for passenger services.
On June 15, Transport Minister Chris Heaton-Harris said: “Since the outbreak of Covid-19, the Government has approved £3.5billion of additional expenditure to ensure vital rail services continue to operate.
“Of this additional expenditure, £2.9billion relates to the 2020/21 financial year. It is not yet possible to provide an estimate of the total cost incurred to date.”
A Guardian report on June 18 suggested this equates to around £100 in subsidy for every passenger journey taken since lockdown, but sources close to the DfT indicate the figure is “a bit off”, with further analysis giving broad support to this estimate.
Analysis suggests while a journey on c2c through the lockdown period has needed less than £25 of DfT support, the five long-distance operators have been requiring more than £100 of subsidy per journey.
Redundancies
Avanti West Coast has needed more than £200 and LNER, in the hands of the DfT’s Operator of Last Resort, requiring almost £250 per passenger journey.
Income is likely to be reduced permanently, and indications are growing TOCs will need to make redundancies.
Some senior managers have suggested cost-saving moves such as changes to the ‘role of the guard’, an issue which has fallen off the radar in recent months, are likely to be examined again.
The rumours prompted a speedy response from railway unions, which said any such moves would result in ballots for further industrial action.
There has been no detail regarding further support for the devolved heavy rail operators in Wales and Scotland as well as the locally managed Merseyrail network.
In addition, the £30million Government support to enable metro and light rail operators to begin ramping up services, announced on May 23, will need to be supplemented while passenger numbers remain low.
Emergency
However, the Scottish Government has confirmed it will provide up to £9m of emergency funding for the Glasgow Subway and Edinburgh Trams to help mitigate the financial impact of the drop in ridership as a result of the pandemic.
The funding will cover the period from July to the end of September.
Both publicly owned operators had been using reserves to support operations since the start of the lockdown.