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The government is preparing for a further 18 months of financial support for passenger train operators once the existing Emergency Measures Agreements expire on September 20, industry insiders have confirmed.
A formal decision is expected to be announced by Secretary of State for Transport Grant Shapps before the Parliamentary summer recess begins on July 22.
The extension will continue the emergency public support to two years from the introduction of the EMAs in March. Insiders had been indicating that a return to ‘normality’ following the coronavirus pandemic was likely to take at least this long and possibly longer.
Calculations suggest that to return to pre-Covid levels by March 2022 would require monthly passenger growth rates roughly five times the best annual growth achieved in recent years. This target is unlikely to be achieved, given the likely impact on commuter demand in particular resulting from job losses and changes in working practices.
The Department for Transport is expected to publish more detailed data in a ‘meaningful’ form ‘very soon’, showing the level of support currently being provided, but TOCs have not been informed when this might happen.
Rail Minister Chris Heaton-Harris reported on June 15 that ‘since the outbreak of Covid-19, the government has approved £3·5bn of additional expenditure to ensure that vital rail services continue to operate. Of this, £2·9bn relates to the 2020-21 financial year. It is not yet possible to provide an estimate of the total cost incurred to date.’
A Guardian analysis on June 18 estimated that the minister’s figures represented an average of around £100 in support for every passenger journey taken since lockdown. While sources close to DfT indicated that this was ‘a bit off’, further analysis broadly supports the overall result. Whilst a journey on c2c currently needs less than £25 in support, the five long-distance operators reportedly need significantly more. Insiders suggest that Avanti West Coast is coming in at over £200 per passenger-journey, while LNER — in the hands of DfT’s Operator of Last Resort — required almost £250.
ERMAs predicate falling supportInsiders anticipate that the 18-month contracts to be introduced from September will be structured as Emergency Remedial Measures Agreements, with the Treasury expecting support levels to reduce as passenger revenue starts to rise. However, it is unclear how soon this is likely to happen.
Although DfT advice on rail travel has moved from ‘essential’ to ‘necessary’ journeys, and guidance for social distancing on trains has been eased below 2 m now that face coverings are mandatory, this has not yet led to significant increases in passenger numbers. Planning for even an initial reduction in support has therefore been difficult.
Given the high level of uncertainty over future ‘unlocking’, alongside any possible coronavirus spikes through the winter, and the fine margins in the management fees being paid to TOCs, which are equivalent to an average 2% on pre-pandemic operating costs, it will be difficult to reach agreement on how support should be cut back. There is almost universal agreement within the rail sector that the pre-Covid passenger numbers on which franchise agreements have been based are unlikely ever to return.
With income likely to be reduced permanently, insiders have suggested that the rail industry will have to start reducing its headcount. Some have told Rail Business UK that cost-saving moves such as changes to the ‘role of the guard’ —which had fallen off the radar in recent months — are likely to come under discussion once again.
Devolved uncertaintyWhilst the government’s strategy covers DfT’s franchised and Operator of Last Resort operators, there has been no indication yet about future support for the devolved rail operators in Wales and Scotland, or the locally managed Merseyrail network.
The £30m of government assistance for metro and light rail operators announced on May 23 will also need to be supplemented while passenger numbers remain low.
This article first appeared on www.railwaygazette.com
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