TOCs paying a premium back to the DFT / Treasury

[Adrian1980uk]

Be interesting to know which ones are and should/ could they get more commercial freedom

 

[Hadders]

I don't think any have paid a premium since March 2020.

 

[LNW-GW Joint]

And it would depend on the contract terms, who is taking the risk on costs and revenue.
But you'd expect LNER and Avanti, and possibly GWR (or whatever those operations turn into under GBR) to turn some kind of profit to subsidise the rest.
London and regional TOCs, not a hope.

 

[J-2739]

And it would depend on the contract terms, who is taking the risk on costs and revenue.
But you'd expect LNER and Avanti, and possibly GWR (or whatever those operations turn into under GBR) to turn some kind of profit to subsidise the rest.
London and regional TOCs, not a hope.

Isn't Greater Anglia doing pretty good these days?

 

[Scott1]

If you follow the money trail the big profits are in leasing companies who own the trains and then lease them to the TOCs. Most of them are registered offshore too, to save on that pesky tax burden.

 

[Adrian1980uk]

Isn't Greater Anglia doing pretty good these days?

That's what I heard, GA are paying a premium, I would guess the other candidate is LNER

 

[Bald Rick]

I don't think any have paid a premium since March 2020.

This is publicly available data for the DfT TOCs albeit it’s about 6 months out of date. Available here:

DfT payments to passenger rail operators under emergency agreements and National Rail contracts

Summary of payments, including management fees, payable by DfT to train operating companies from 1 March 2020 to 31 March 2024 under emergency agreements and National Rail contracts.

www.gov.uk

It’s fair to say that the non DfT TOCs are not paying a surplus to their funders!!

The payments are each 4 week period, and there are some wide fluctuations due to when certain income or outgoings land in the accounts. And income varies with the strikes / seasons / season ticket peaks etc. The TOCs that are now effectively in surplus are LNER and GA, with Chiltern, SWR and Avanti close to it, and may well be by now.

 

[dk1]

Isn't Greater Anglia doing pretty good these days?

Most certainly.

== Doublepost prevention - post automatically merged: 28 Jun 2023 ==

About time the DfT allowed them to offer a decent employee pay rise.

 

[J-2739]

Most certainly.

== Doublepost prevention - post automatically merged: 28 Jun 2023 ==

About time the DfT allowed them to offer a decent employee pay rise.

From the many times I've used them now, they have always come across as well run and competent, with a completely brand new fleet of pleasant trains, so I would totally support this.

 

[dk1]

From the many times I've used them now, they have always come across as well run and competent, with a completely brand new fleet of pleasant trains, so I would totally support this.

Cheers. Glad to hear it. We suffer nothing like the traincrew related horror stories seen elsewhere either.

 

[LNW-GW Joint]

That's what I heard, GA are paying a premium, I would guess the other candidate is LNER

The elephant in the room is the DfT direct grant to Network Rail to top up the TOCs' access charges.
If you divi that up among the TOCs hardly any of them are paying a net premium to DfT (LNER might be different as it's a long-distance TOC only).

 

[Bald Rick]

If you divi that up among the TOCs hardly any of them are paying a net premium to DfT (LNER might be different as it's a long-distance TOC only).

If you divide the Network Grant proportionally to TOCs, the only TOC ’breaking even’ pre Covid was LNER, with SWR and GTR getting close.

None are remotely close now.

 

[Clarence Yard]

It isn’t really a premium, like when they were franchises.

Because the TOCs are not on cost or revenue risk anymore, there is a periodic operating payment from/to the DfT, to cover the net operating costs. That could be a “plus” figure (to the TOC) or a “minus” figure (from the TOC).

The DfT operate their TOCs as effectively one big financial entity so there is no scope for a TOC that contributes to the pot to “do its own thing”.

Network Grant and FTA are two sides of the same coin. Both are subsidies from Government to NR, the latter being “laundered” through the TOCs finances with the DfT. FTA is effectively a “pass through” which varies from year to year (sometimes wildly) and plays absolutely no part in TOC decision making.

You can’t really split Network Grant up by TOC without knowing the proportion of non traffic related fixed costs on the route/region as a proportion of the total network and how that would split to TOC but it is clear that nearly all (if not all) DfT TOCs don’t cover the full fixed costs of their part of the Network.

 

[12LDA28C]

I believe Chiltern Railways was doing exactly that some years ago, maybe in the 2010s and was the only TOC at that time to do so. Not any more, of course.

 

[thedbdiboy]

It isn’t really a premium, like when they were franchises.

Because the TOCs are not on cost or revenue risk anymore, there is a periodic operating payment from/to the DfT, to cover the net operating costs. That could be a “plus” figure (to the TOC) or a “minus” figure (from the TOC).

The DfT operate their TOCs as effectively one big financial entity so there is no scope for a TOC that contributes to the pot to “do its own thing”.

Network Grant and FTA are two sides of the same coin. Both are subsidies from Government to NR, the latter being “laundered” through the TOCs finances with the DfT. FTA is effectively a “pass through” which varies from year to year (sometimes wildly) and plays absolutely no part in TOC decision making.

You can’t really split Network Grant up by TOC without knowing the proportion of non traffic related fixed costs on the route/region as a proportion of the total network and how that would split to TOC but it is clear that nearly all (if not all) DfT TOCs don’t cover the full fixed costs of their part of the Network.

Correct - the old TOC franchise model is long dead. All fare revenue goes to DfT and the TOC is paid a fee (with various performance criteria) for operating the contract. Only at Government level is it possible to aggregate the true total costs (including direct Network Rail grant) and revenues of various routes.

 

[Adrian1980uk]

Correct - the old TOC franchise model is long dead. All fare revenue goes to DfT and the TOC is paid a fee (with various performance criteria) for operating the contract. Only at Government level is it possible to aggregate the true total costs (including direct Network Rail grant) and revenues of various routes.

Although factually true, a few TOCs are earning more in fares than their costs, I was thinking there should be more commercial freedom to run more services and therefore increase revenue further (hopefully).

 

[jon0844]

If you follow the money trail the big profits are in leasing companies who own the trains and then lease them to the TOCs. Most of them are registered offshore too, to save on that pesky tax burden.

Of course, and the Government isn't going to do anything to hurt that because they'll likely have stakes in them in some way.

 

[43066]

This is publicly available data for the DfT TOCs albeit it’s about 6 months out of date. Available here:

DfT payments to passenger rail operators under emergency agreements and National Rail contracts

Summary of payments, including management fees, payable by DfT to train operating companies from 1 March 2020 to 31 March 2024 under emergency agreements and National Rail contracts.

www.gov.uk

It’s fair to say that the non DfT TOCs are not paying a surplus to their funders!!

The payments are each 4 week period, and there are some wide fluctuations due to when certain income or outgoings land in the accounts. And income varies with the strikes / seasons / season ticket peaks etc. The TOCs that are now effectively in surplus are LNER and GA, with Chiltern, SWR and Avanti close to it, and may well be by now.

Interesting GA and SWR are close to surplus as primarily commuter operators (albeit presumably GA have lost a fair of their “inner” commuter traffic to the EL).

== Doublepost prevention - post automatically merged: 29 Jun 2023 ==

Although factually true, a few TOCs are earning more in fares than their costs, I was thinking there should be more commercial freedom to run more services and therefore increase revenue further (hopefully).

And to be able to do things most private organisations can do, such as negotiate with their own workforce, free from government interference!

 

[12LDA28C]

Correct - the old TOC franchise model is long dead. All fare revenue goes to DfT and the TOC is paid a fee (with various performance criteria) for operating the contract. Only at Government level is it possible to aggregate the true total costs (including direct Network Rail grant) and revenues of various routes.

Fare revenue goes to the Treasury, not the DfT who merely subsidise the operation of the railway. It would be much better if the department that funds the railway received the revenue but sadly that isn't the case.

 

[Bald Rick]

I was thinking there should be more commercial freedom to run more services and therefore increase revenue further (hopefully).

Commercial freedom means increasing profit, which could be increasing revenue (as long as costs increase less) or reducing costs.

In the current industry model, the key thing is to increase industry revenue, which isn’t quite the same thing.

Any proposed service increase needs to demonstrate it will be industry revenue positive, and that the revenue is reasonably certain a) to happen and b) to cover the extra costs.

Interesting GA and SWR are close to surplus as primarily commuter operators (albeit presumably GA have lost a fair of their “inner” commuter traffic to the EL).

yep, GA losing the inners has been very helpful to their ”bottom line”. I’m not surprised they are there or thereabouts. Those new trains have been a massive prop for their passenger numbers, although obviously not the 7% year on year growth assumed in the original franchise (hence the 3+2 seating, and about 25 units too many).

SWR (SWT) was always a cash cow, specially the blue / white trains. The red trains were break even at best. All those season tickets from Micheldever and Worplesdon etc don’t half add up. Even so, SWR and Southeastern are the two TOCs that have suffered most from the loss of commuters, and it is a slow grind to get revenue back. Although I gather that Southeastern high speed is doing well.

== Doublepost prevention - post automatically merged: 29 Jun 2023 ==

Fare revenue goes to the Treasury, not the DfT

Not so. It’s more complex.

Fare revenue goes to the TOC.

The TOC is then paid its net costs, after revenue, by the DfT from the DFT budget. Occasionally, a TOC is in surplus, ie fares greater than costs, and it then pays the surplus to DfT.

What HMT are on the hook for is revenue risk. That is, is if revenue is below (or above) the forecasts made and agreed between HMT and DfT (backed off in the contracts between DfT and the TOCs) for each year, HMT makes up the difference or if it’s ‘right side’ pockets the difference.

The effect of this is that HMT will need to be pretty damned certain that any proposal to increase costs on the network comes with a near guarantee that it increases revenue.

 

[LNW-GW Joint]

I believe Chiltern Railways was doing exactly that some years ago, maybe in the 2010s and was the only TOC at that time to do so. Not any more, of course.

But there were other years when Arriva (ie DB) had to bail Chiltern out (and Cross Country) from the profits it made at Arriva Trains Wales and London Overground.

 

[Thirteen]

I assume TfL's concession model for London Overground, the Elizabeth Line, DLR etc is similar to the DfT controlled TOCs

 

[Bald Rick]

I assume TfL's concession model for London Overground, the Elizabeth Line, DLR etc is similar to the DfT controlled TOCs

Similar.

 

[43066]

I assume TfL's concession model for London Overground, the Elizabeth Line, DLR etc is similar to the DfT controlled TOCs

Similar.

Presumably the intention has always been to restore more commercial independence to TOCs (or concessionaires) in terms of commercial freedom at some stage, as per the comments along those lines at the recent select committee meeting. It’s hard to imagine a conservative government really envisaging this level of micromanagement of the industry, even by an arm’s length body.

Of course the detail on GBR, and how much control it will really have over concessionaires, has always been pretty sketchy and is now very much subject to change under a new administration, in any case.

 

[Thirteen]

Presumably the intention at some point has always been to restore more commercial independence to TOCs (or concessionaires) in terms of commercial freedom, as per the comments recently discussed select committee meeting. It’s hard to imagine a conservative government really envisaging this level of micromanagement of the industry, even by an arm’s length body.

Of course the detail on GBR, and how much control it will really have over concessionaires, has always been pretty sketchy and is now very much subject to change under a new administration, in any case.

I wonder if making GBR more like TfL or indeed having GBR be controlled not by the DfT but by various local Transport authorities might be the key to making it a success.

 

[Clarence Yard]

GBR will always be “controlled” by the DfT, whoever is in Government, because of the funding stream and the departmental responsibility for it.

 

[Carlisle]

But you'd expect LNER and Avanti, and possibly GWR (or whatever those operations turn into under GBR) to turn some kind of profit

Avanti probably save a few quid once the costs of operating Voyagers (or any alternative to 390s) cease north of Weaver Junction & route retention on the Glasgow & Southwestern ends .

 

[LNW-GW Joint]

Avanti probably save a few quid once the costs of operating Voyagers (or any alternative to 390s) cease north of Weaver Junction & route retention on the Glasgow & Southwestern ends .

But then the cost structure of the WCML services will switch towards HS2 within a decade, which we know nothing about yet.
LNER only really delivers an inter-city type service, while Avanti has a regional and even a local character in the West Midlands and North West.
Switching Birmingham-Preston-Scotland away from XC to WC also blurred the picture.
If LNER had a West Yorks loop via Leeds it would be more comparable, which it could do once York-Leeds is wired.

 

[HSTEd]

Virtually no TOCs have ever net paid a premium to the state, I think Southeastern was one of the few that marginally did before coronavirus.

The reality is that the TOC "premium" payments exist primarily for political purposes to provide cover for the supposedly commercial nature of the railway.

It just churns public subsidy money from the Government through Network Rail, to the TOCs (in the form of depressed infrastructure charges) who then make a big show of passing some of it back to the Government again for the purposes of public relations.

 

[Bald Rick]

Virtually no TOCs have ever net paid a premium to the state, I think Southeastern was one of the few that marginally did before coronavirus.

Lots of TOCs did, some substantially.

But as @Clarence Yard points out, the NR track access charges make the whole ‘subsidy/premium’ discussion pretty difficult.

As I said upthread, LNERs predecessors paid sufficient premium to cover the (theoretical) long term replacement cost of infrastructure too. SWT and GTR were nearly there too. But that was about it.

Southeastern has the big cost of HS1 track access charges, which means it hasn’t been in premium territory for a long while.