Rail franchise payments slump as revenues slow across the industry

Train operators paid the government £400m in 2017/18, a £300m slide on the previous year’s payment.

In its annual funding report, the Office of Rail and Road said franchise payments had declined because of planned changes as set out in franchise agreements, cost increases on certain franchises, payments to some train operators for delays to infrastructure upgrades, and “lower than expected revenue growth across the industry”.

The total cost of running the railway was £20.6bn, a rise of 1.4%, while the industry received total income of £19.4bn, a 1.3% decline.

One of the main drags on income was a 1.4% fall in passenger journeys in the year to March 2018, the period covered by the report, led by an 8% decrease at South West Trains. The operator has struggled with strike action and had to close a platform at Waterloo in the summer of 2017. Waterloo is the UK’s busiest station.

As a result, the regulator said overall income from fares had decreased 2.4% at £9.8bn.

Income from on-board catering, car parking and other activities rose, however, up 2.3% to £900m, and train operators’ overall costs fell 1.6% to £12.9bn. This was attributed to the operators paying 12.1% less to governments, which helped offset increased staff costs – up 0.9% – and the cost of rolling stock, which was 5.5% higher.

Train operators’ declared dividends were £300m, a decrease of 27% on 2016/17 but an improvement of 6.5% over a five-year period. Over the last five years, dividends have remained equivalent to around 2.5% of passenger fares.

Network Rail, which owns and manages the UK’s infrastructure, saw its costs increase 9.3% to £8.6bn, as financing costs rose. The body also had to pay out £400m in compensation for unplanned service disruptions that prevented operators from running trains.