RMT on Coronavirus bailout bonanza for TOC's

22 July 2020

RMT Press Office:

Research reveals that private rail companies stand to make £500 Million from Coronavirus bailouts while passengers and rail unions call for nationalisation.

Britain’s private rail companies stand to make almost £500 million in profits over the next 12 months according to new research, amid widespread speculation that the government is about to extend its Emergency Measures Agreements.

Analysis of ministerial answers to questions in Parliament indicate that the government’s Emergency Measures Agreements (EMAs) will see the government hand over around £231 million in operating profits to the train operating companies over a 12 month period. The train operating companies are currently lobbying the government to extend the agreements for a further 18 months.

These same agreements also entail the government ‘picking up the tab’ in full for the lease charges that would be paid by the train operating companies to the rolling stock companies, the ‘ROSCOs’. Analysis of the ROSCOs’ accounts shows that in the last year, they made profits of £241 million. If the government renews the EMAs and continues to bail out the train operating companies, we could see around £500 million in desperately needed public funds leaking out of the railways into private profit.

Groups representing passengers and rail workers have written to MPs from across the political spectrum calling on them to demand proper scrutiny of any government decision on the EMAs and urging them to support nationalisation of the network to stop the scandalous profiteering at public expense. The letter, sent on behalf of rail unions and passenger groups, says that Britain needs a safe, affordable and accessible railway to support public transport and decarbonisation and that every penny of public money should be used to invest in a recovery plan that will get badly needed rail services back on track rather than leaking out into private profit.

RMT Senior Assistant General Secretary Mick Lynch said, ‘we desperately need a properly funded rail network to play its crucial role in fighting climate change and to keep the lifeblood of our economy flowing. Now more than ever we need every penny of public money invested in building a safe, affordable, accessible railway, not leeched out of the system by a small group of big businesses with a consistent record of failure.’

Ellen Lees, campaigns officer at We Own It said: "If the government continues to pursue bailouts of the rail industry, they'll once again be ignoring the reality that's staring them straight in the face. No matter how many times they try to prop up a failing system, the private rail companies will always come crawling back cap in hand for more cash.

"It's time we ended this farce. Instead of funneling millions into the pockets of private companies, we should bring our railways into public hands - so they can work for people and the planet, not for private profit."

Emily Yates, Co-Founder of the Association of British Commuters said, ‘Passenger trust is more important than ever, but it has been severely damaged by years of crisis on the railways. Public ownership is now the only way to restore this trust, and start building the integrated, efficient and accountable system we deserve.’

Ellie Harrison, Founder, Bring Back British Rail said, ‘Privatised rail has never worked. 'Natural monopolies' like our railways need to be centrally co-ordinated and run for the public good. Now the coronavirus crisis has laid bare this simple truth. Public transport is an essential public service to get our key workers to their jobs. We must stop the bailouts to failing private rail companies, and seize this opportunity to 'take back our trains' for good.’

ENDS

Notes for Editors

NOTES TO EDITORS:

The joint letter to MPs can be found here

The research can be found in full in RMT’s new report ‘Profiteering at a time of crisis’, which can be downloaded here

Answers to questions tabled in Parliament by Ian Mearns MP revealed that the government is preparing to hand the private companies a lump sum worth 2% of the ‘cost base’ of the franchises before the COVID-19 crisis began. Figures published by the Office of Rail and Road reveal that this cost base equated to £11.5 billion over 2018-19, meaning that the companies would stand to make £231 over a 12 month period. For scale, this is roughly equivalent to the amount that the TOCs paid out in dividends to their owners on average every year for the last 10 years (£219 million).

· On 9^th June, Ian Mearns MP asked: “What estimate [The Secretary of State for Transport] has made of how much each train operating company will receive as payment during the six months of Emergency Measures Agreements?” On 15^th June Rail Minister Chris Heaton Harris said: “Franchisees will be paid a maximum of 2% of the cost base of the franchise before the COVID-19 pandemic began, payable as a lump sum at the end of the initial 6-month Emergency Measures Agreement period. A proportion of the fee will be conditional on operators meeting performance, passenger experience and efficiency targets.” https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2020-06-09/57184/

· Franchised train operators expenditure is calculated using the ORR’s financial information from 2018-19 as the most recent year’s data indicating the cost base of franchises before the Covid-19 crisis began. Franchise payments to government have been deducted from this cost base as it is assumed these will not be being paid. https://orr.gov.uk/rail/publications/economic-regulation-publications/uk-rail-industry-financial-information/uk-rail-industry-financial-information-2018-19 See data tables 2.2 and 2.4.

Table 1: Cost base of rail franchises and the value of a 2% management fee

£m	GB total	England	Scotland	Wales
Franchised train operators expenditure
Staff costs	3,303	2,872	298	132
Fuel costs	396	321	56	19
Rolling stock charges	2,450	2,205	171	74
Other operating expenditure	5,194	4,501	527	166
Interest and exceptional expenditure / (income)	161	158	3	0
Corporation Tax	59	54	1	4
Franchised train operator expenditure	11,563	10,111	1,056	395
2% Management fee over 12 months	231	202	21	8

· On 7 April, appearing in front of the Transport Select Committee, Minister of State for Rail Chris Heaton Harris was asked whether the government was covering the costs of leasing trains from the ROSCOs or whether the companies had agreed to waive those charges for the duration of the crisis. Heaton Harris said “Currently, we are picking up the tab.”[1] Labour MP Grahame Morris subsequently tabled further questions in Parliament asking how much the ROSCOs were receiving. On June 2^nd the Minister answered that “Train Operating Companies are continuing to pay the contractually agreed rental cost for rolling stock as they were prior to the Emergency Measures Agreements.” In a further answer he confirmed that “Rolling stock contracts are fixed over the term of the original franchise and were competitively procured by the operators; the same payments will continue through the period of the EMA.”[2]

· In the last year for which figures are available (2018/19), the train operating companies paid £2.45 billion in leasing charges to the rolling stock companies.[3]

· In the year ending December 2018, the three ROSCOs made profits before tax of £241 million between them.

Table 2: ROSCO profits and dividends for the financial year ending December 2018[4]

Rolling Stock company	Profit Before Tax	Dividend
Porterbrook*	£81,659,000	£80,000,000
Angel Trains**	£128,900,000	£147,000,000
Eversholt***	£30,469,000	£40,100,000
Total	£241,028,000	£267,100,000

*Porterbrook Holdings 1 Ltd, Annual Report and Financial Statements, Year Ended December 2018

**Angel Trains Ltd, Annual Report and Financial Statements, Year Ended December 2018

***Eversholt UK Rails (Holding) Ltd (Security Group), Annual Report and Financial Statements, Year Ended December 2018

· The public is directly paying for the profits of these rolling stock companies and these companies in turn are being sucked out of the industry and turned into dividends rather than reinvested. The ROSCOs pay an average of £263 million out of the industry in dividends, often more than 100% of their profits, to their owners each year, amounting to £2.39 billion in the last 10 years.[5]

[1] Transport Committee Oral evidence: Coronavirus: implications for transport, HC 268 Tuesday 7 April 2020 https://publications.parliament.uk/pa/cm5801/cmselect/cmtrans/correspondence/transcript-coronavirus-implications-for-transport-07-04-20.pdf

2 https://www.parliament.uk/business/publications/written-questions-answers-statements/written-questions-answers/?page=1&max=20&questiontype=AllQuestions&house=commons%2Clords&dept=27

3 https://orr.gov.uk/rail/publications/economic-regulation-publications/uk-rail-industry-financial-information/uk-rail-industry-financial-information-2018-19.

4 Picking up the tab for trains: how the public is funding profiteering in rolling stock, RMT report, July 2020, p.9

5 Counting the costs of privatisation, RMT Report, January 2020