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