In terms of cross-subsidy from intercity routes, it makes sense to me that any cross-subsidy should be restricted to the value of the network effects. More people use intercity trains because they can get through-ticketing, full-journey guarantees, and easy changes from local services to intercity services, so there is clearly some revenue benefit. There are probably also some fairly significant cost benefits as well to being part of a larger network, since it reduces the costs of having staffed stations, shares track maintenance and to some extent provides a training ground for staff.
Ignoring cross-subsidies, it's probably worth providing some level of subsidy to intercity trains generally, because it's a greener form of travel, and it cuts congestion. You may also want to subsidize quite specific requirements of intercity operations, in ways which don't maximize revenue in the annual accounts - encouraging modal shift over the longer term, providing accessible travel, ensuring that travel across the country is available to all, making it cheap to travel/move to jobs in other areas, and making it easier to industry and jobs to spread across the country.
It's not at all clear that the LNER-style mandatory reservations and advance-only ticketing has really achieved anything to anybody's benefit at all. I haven't seen any internal analyses, but given that they are now running dozens of extra trains compared to the start of the trial period, and their revenue increases have been rather modest over the time, I'd suggest that it doesn't increase revenue, and therefore doesn't decrease subsidy.
Equally, it doesn't seem to have driven more people off the roads and onto their trains - standing levels are arguably disappointingly low for the only transport medium which can effectively allow standing, and the seats aren't exactly busy, particularly further north. My experience of West Coast may be slightly restricted, but to me it always seems to load rather better.
Finally, it removes options and confidence about travel from a whole segment of the user base, which acts strongly and directly against the benefits to regional and industrial policy the government should be pursuing. It's all bad, all the way down.