UK Exchange newsletter: All aboard? A new crisis looms over Britain’s troubled rail system
This report is from this week’s CNBC’s UK Exchange newsletter. Each Wednesday, Ian King brings you expert insights on the most important business stories from the U.K. and other key developments you won’t want to miss. Like what you see? You can subscribe here.
rail unions hate it and so, it has long been suspected, do civil servants in the Department for Transport (DfT). It has come into greater focus because, during the last year, there have been a record number of applications made by companies to operate trains under open access.
This prompted Heidi Alexander, the new transport secretary, to write in January to Declan Collier, chairman of the Office for Rail and Road (ORR), the industry regulator, warning him to adopt a more rigorous approach toward open access applications.
She ordered him to take into account whether there would be sufficient capacity on the rail network for new services and raised concerns that open access operators do not meet the full cost of track access. She also told him to be mindful of whether the new operators would deprive existing operators of revenues.
That raised concerns that Alexander could be simply doing the bidding of the rail unions and looking to protect state-run operators like LNER from the blast of competition. These worries were heightened when, at the end of June, Richard Goodman, one of the senior civil servants in the DfT, wrote to Collier to reinforce Alexander’s message.
“DfT analysis suggests that the sum of annual abstraction of each of the currently live open access applications would be up to £229 million (24/25 prices), not accounting for the revenue impacts resulting from those services interacting,” he wrote.
“This represents a significant additional cost to taxpayers and would materially affect the funds available to the Secretary of State.”
Some saw this letter as an attempt to dissuade the ORR from approving new applications.
If that was the intention, the tactic appears to have worked.
Last week, the ORR rejected applications from three companies seeking track access contracts with Network Rail to run services on the West Coast Main Line, which connects Glasgow to London and serves major cities including Birmingham, Liverpool and Manchester.
Explaining the decision, the ORR’s Stephanie Tobyn said: “It was clear that there was insufficient capacity to approve any of the services without a serious negative impact on the level of train performance that passengers experience on the West Coast Main Line.”
Among those whose application was blocked was Richard Branson’s Virgin Trains, a previous — and popular — franchise operator on the West Coast Main Line, which called the decision “a blow for consumer choice and competition.”
The news also disappointed businesses in parts of the country currently underserved by the existing network. A good example is Shropshire, where there was strong support for plans from a new operator, Wrexham, Shropshire and Midlands Railway, owned by the French rolling stock manufacturer Alstom, to run five trains per day between Shropshire and London.
All of this has raised fears that Alexander and the rail minister Peter Hendy, an industry lifer, are determined to kill open access — whose operators would be too expensive to renationalize — altogether.
For its part, the Department for Transport says this is untrue.
“We’re supportive of Open Access services where they encourage growth, improve connectivity and provide more choice for passengers,” a DfT spokesperson told CNBC. “However, Open Access shouldn’t come at a cost to the taxpayer or negatively impact performance.”
only run to Birmingham and is both years behind schedule and billions of pounds over budget.
Meanwhile, having been in a position when the railways were close to covering their daily running costs prior to the pandemic, taxpayer subsidies have since ballooned.
In 2022-23, the most recent year for which figures are available, government support to the railways totaled £21.1 billion, up 64.5% on the level prior to the pandemic, while passenger revenues came in at just £9.2 billion, down 31% on pre-pandemic levels.
The growth in working from home means commuter numbers are unlikely to recover to pre-pandemic levels. That means, if total passenger numbers are ever to be rebuilt, the railways will have to do more to attract leisure travelers. That is a task for which the open access operators, with their experience of innovation in fares and services, are ideally suited.
— Ian King
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