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Train operators in England are preparing to make further cuts to their budgets as the rail industry struggles to recover from a big hit to revenues following the coronavirus pandemic.
The UK government, which controls the industry’s finances after in effect renationalising it during Covid, has asked companies to identify savings in their business plans for the next financial year beginning in April, according to two people familiar with the matter.
The demand for further savings comes despite austerity measures already forced on the industry in the wake of the pandemic and while no final decisions have been taken, one of the people warned it would be extremely difficult to take more costs out without affecting services.
Train operators in England had been planning to generate significant savings from the mass closure of ticket offices, but the government ordered a U-turn in October following a public backlash. Rail is devolved in Scotland and Wales.
Some train companies have already slimmed down their timetables and reduced the length of trains by running fewer carriages on some services to save on electricity and track access charges, as well as cutting other costs including cleaning, catering and marketing.
The heavily subsidised industry is under pressure as rail passenger numbers have failed to recover after the pandemic, particularly during peak commuting hours following the rise in remote and flexible working.
Passenger journeys in the week ending December 3 were still 20 per cent below the equivalent week in 2019, according to the most recently available government figures. The data excludes the Elizabeth Line in London, which was not running in 2019.
Lower usage has hit revenues hard in recent years. In 2022-23, the last full financial year, revenues totalled £9.2bn, more than £4bn below pre-pandemic levels.
As a result, ministers have poured in billions to prop up the industry since the pandemic hit, with £11.9bn of taxpayer funding in 2022-23, including £4.4bn to support train operators. This was a drop from the £14.6bn in the previous 12 months but still more than double the £5.1bn in subsidies in 2018-2019, the last year before the pandemic hit.
Ministers earlier this month capped next year’s rail fare increase in England at 4.9 per cent, well below July’s retail price index figure of 9 per cent on which annual fare rises have historically been based.
This will have little impact on operators, as all fare revenue is passed to the Treasury with the government paying operators a management fee to operate services.
Industry executives have complained that the tight government controls have removed any commercial incentives to grow traffic and have called for more freedom to launch initiatives to boost passenger numbers instead of focusing on cost-cutting to reduce reliance on state subsidies.
But one government figure said that ministers believed that the rail operators could provide the same level of service on a somewhat tighter budget. “We’re still subsiding rail by a heck of an amount,” they said. “We want the same output for less money.”
Norman Baker, a former transport minister who now works with the pressure group Campaign for Better Transport, criticised demands for further cost savings. “Making cuts to services and facilities . . . can only drive people off trains and make the imbalance between expenditure and income worse. The answer is not to make cuts to services but cuts to fares to get people back on board.”
The government said: “We have been upfront about the need to reform our railways in order to make them financially sustainable, and we expect operators to maintain services while ensuring passengers are provided better services at no additional cost to the taxpayer.”
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