Col­lapse in rail prof­its hits the pub­lic purse as costs and write­downs con­tinue to es­ca­late

The Sunday Telegraph - Money & Business - - Front page - By Oliver Gill

RAIL prof­its have fallen off a cliff, plum­met­ing 80pc, as op­er­a­tors grap­ple with spi­ralling costs and crip­pling con­tract write­downs, The Sun­day

Tele­graph can re­veal.

Anal­y­sis of Com­pa­nies House records shows train com­pa­nies made an ag­gre­gate of just £66m in their most re­cent an­nual fil­ings on al­most £11bn of rev­enue. Div­i­dend pay­outs fell by only 6pc to £213m, how­ever. Rail lead­ers sug­gested the fig­ures are part of “broader prob­lems with the in­dus­try”. To­tal prof­its were sav­aged by cat­a­strophic write­downs of £106m and £94m re­lat­ing to the Tran­spen­nine Ex­press and the now state-run East Coast Main Line re­spec­tively. Ex­clud­ing such one-off charges, year-on-year prof­its still slumped by a fifth.

The dire state of rail com­pa­nies’ fi­nances comes amid grow­ing anger among op­er­a­tors that they are be­ing squeezed by the De­part­ment for Trans­port (DFT). Last week, The Tele­graph re­vealed that the Dutch Gov­ern­ment led an £80m res­cue pack­age to plug a gap­ing hole in the fi­nances of the Greater Anglia fran­chise – a short­fall the op­er­a­tor blamed on the DFT and its im­ple­men­ta­tion of a “com­pletely flawed” rev­enue-shar­ing mech­a­nism.

Ear­lier this year the East Coast Main Line was handed back to the Gov­ern­ment by op­er­a­tors Stage­coach and Vir­gin af­ter rack­ing up more than £200m of losses. And con­cerns are mount­ing over the pre­car­i­ous po­si­tion of the £1bn-a-year South Western Rail­way.

Chris Grayling, the Trans­port Sec­re­tary, wants to shift the fi­nan­cial bur­den of the rail­ways from the ex­che­quer to the rail user. How­ever, the col­lapse in rail prof­its has hit the pub­lic purse. Filed fi­nan­cial state­ments show that ag­gre­gate cor­po­ra­tion tax pay­ments plum­meted from £82m to just £10m.

And in a bizarre twist one of Bri­tain’s small­est op­er­a­tors, Hull Trains, made more profit – £6.7m on £31m of rev­enue – than the na­tion’s largest, Govia Thames­link (GTR) – £4.9m on £1.3bn.

John Thomas, a di­rec­tor of pol­icy at the Rail De­liv­ery Group said: “There are broader prob­lems with the plumb­ing of the rail in­dus­try and we need bold re­form to fix this for the ben­e­fit of cus­tomers and tax­pay­ers.”

Rail ex­perts said Gov­ern­ment pol­icy was in part to blame for the profit down­turn. Naomi Hor­ton, a rail part­ner at law firm Ashurst, said: “The in­creased fo­cus on profit-cap­ping and shar­ing in rail fran­chise agree­ments will place a nat­u­ral up­per limit on the profitabil­ity of train op­er­a­tors.”

Martin Fleet­wood, con­sul­tant at Ad­dle­shaw God­dard, said waves of in­dus­trial ac­tion and a ris­ing propen­sity for com­muters to work from home one day a week “are likely to have an effect”.

“Un­like a Toblerone bar, the fran­chise agree­ment doesn’t al­low you to take out chunks of ser­vices so you can con­tinue to pro­vide a prod­uct with­out in­creas­ing its cost,” he said.

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