All national rail systems are subsidised to a greater or lesser extent by Governments. It is simply not possible to run an integrated network without such a subsidy. Granted some lines can and do make a profit, but overall a national network will always need a subsidy, that applies in mainland Europe, the US, Canada, the UK etc. one key question is who should pay the subsidy or contribute most to the cost of running the railway? You can keep fares down by increasing the central subsidy, but then non rail users have to pay a greater proportion to a system they do not use a receive little benefit from. The UK are currently trying to reduce this central subsidy by asking those that actually use the service pay a greater proportion of the overall cost, and I cannot say this is not fair.
I understand the arguments about money being extracted out of the system in the form of artificially created profit to private companies. This comes down to the whole argument for privatisation and can a private company run the service more efficiently me for lower cost, including the profit amount, that the state could. This is an argument you will never be able to prove one way or another, however Labour did not take steps to re-nationalise the railways and the Coalition Government is not doing so either, which suggests all Governments over the past 15 years believe privatisation and having services run by profit making private companies is the way to go. I think the contracts do need looking at to ensure profits are not guaranteed regardless of TOC performance, and TOC's should be punished, either through fines or ultimately making a loss, for poor performance. The current system isn't perfect, but neither was BR.