If peak demand is as high as stated, and the system is a financial basket case, then pretty clear that fares are too low.
Increase fares to those in the South East.
(Ducks and runs for cover).
I addressed this in a previous post. The SE England rail network can be self-sustaining because fares are high. Passengers then pay those high fares because it's their only real option. The jobs available in London are largely unavailable elsewhere in the UK, and housing costs in London itself are so high that even an extortionate season ticket cost is reasonable in comparison. The same enormous salary/cost-of-living gap is not the case in Cardiff, and if fares were raised people would either move out of the Valleys or out of South Wales completely. There's a hard limit on the amount of revenue that can practically be extracted from commuters in the Valleys, and LR has a better chance of being near or under it than HR does.
So this may be a bit off topic, but why is that a bad thing? Using public money for something that is important to the public. Funding public roads is technically a subsidy, but that is never seen as a bad. Same for schools etc. So why is public subsidy suddenly a bad thing when rail is the topic?
Subsidy isn't bad. The problem is that anything you subsidise means money isn't available to go to other needy causes, either in transport or in wider public services. Transport is something a government can have a major influence in which is also directly able to provide revenue to cover its costs. We don't think about subsidising schools or hospitals so much because you can't practically get revenue in return for those services.
If a system requires a lot of subsidy to provide a certain level of benefit, then it is entirely reasonable for governments to try to either get more benefit for the same money, or the same benefit for less money. If there are real efficiencies to be made, then the existing system must be in some way inefficient, and inefficient government spending helps no-one.
But that is what the WG is suggesting is it not?
By irrevocable I mean actively going around demolishing existing alignments. The Oldham Loop conversion works involved demolishing viaducts and closing tunnels to force street running, which makes it much more irrevocable than, say, the Altrincham line. When the Luas Green Line was built in Dublin they kept most of the southern section as a segregated metro so that it could, in future, be converted into a heavier non-street-running system.
In Cardiff, that could mean the Coryton and Bay branches are rebuilt permanently to be LR-only, but the line between Queen Street and Heath would remain segregated. Eventually once passenger levels are high enough, an alternative street running route could be provided between the two. The LR-only sections would be joined up with LR-only track, while the segregated former HR route could specialise for higher-capacity metro trains not outfitted for street running. A Queen Street to Heath street running line won't be justifiable today because passenger numbers aren't high enough and the costs would be too much to bear, but in future it could be an essential capacity boost for the network that would pay for itself.