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First Great Western, the much-criticised Paddington-based train company, has received a secret £50 million bailout from the taxpayer.
Figures from FirstGroup today revealed profits from its rail operations plunged more than 20% last year.
But they would have been far worse were it not for a handout from the Department for Transport because recession-hit passenger revenue numbers are not coming in on budget.
The news indicates the extent of the crisis on the railways.
Stagecoach's South West Trains is in dispute with the department in a bid to claw back money while National Express is expected by many in the industry to have to hand the keys back to its King's Cross-based East Coast Main Line business.
At issue is the falling profitability of the rail companies serving London.
Job losses in the capital have put the brakes on expected commuter passenger growth and the economic crisis has also seen passengers who used to travel first class trading down to standard.
In addition leisure travellers have wised up to the rip-off fares on the railways and are now more likely to pre-book cheaper advance tickets rather than pay full whack "walk-on" fares on the day.
Sir Moir Lockhead, the FirstGroup chief executive who has been the victim of abuse from passengers who christened the Paddington services Worst Late Western, said today: "What we have is a very resilient business with very good protection."
What Lockhead means is that under the terms of its contract to run First Great Western, if passenger revenues begin to fall below the targets it said it would hit in its franchise agreement, then the department will use taxpayer money to make up the shortfall.
In the case of First Great Western, if that shortfall is worse than 94% of target then the department for Transport and the taxpayer pick up 80% of the cost.
Lockhead admitted in FirstGroup's financial year to the end of March that handout was worth £50 million to First Great Western, a franchise which was planned to be so profitable that from this year it is supposed to be making so-called premium payments back to the Treasury. The emergency handout arrangement for First Great Western continues this year.
It also begins to kick in for the first time at the group's other commuter franchise First Capital Connect running on the north-south Thameslink railway.
FirstGroup's rail businesses today reported profits for the year down from £120 million to £94 million with profit margins down by nearly a third to 4.4%.
The handouts have not stopped plans for FirstGroup to cut about 1000 staff on the railways.
FirstGroup's group profits, including its London bus and United States operations, grew by 30% to £200 million. Its dividend is up 10% to 18.75p.
...and there's trouble down the line for others
There is barely a London train company without its problems.
King's Cross: Profits are being wiped out on the East Coast Main Line, once reckoned to be Britain's most lucrative railway. Passenger revenue growth has slumped from 11% a year ago to just 0.3%.
National Express and its chief executive Richard Bowker, who used to run the Government's former rail franchise quango signed up to a contract in which it was expected to pay the Treasury £1 billion in excess profits over the next five years. But the contract does have a “revenue support” safety net for the Government to pick up the bill if income falls. Bowker is now widely expected to hand the keys back unless he can negotiate a new deal.
Liverpool St: Passenger revenue growth at National Express East Anglia has fallen to just 3.8%. Though the East Anglian train franchise is supposed to pay the Treasury £500 million in excess profits over the next five years it is already getting revenue support from the Government and a £180 million taxpayer handout to put on more peak commuter trains.
Fenchurch St: Passenger numbers are still growing at 4.6% a year on the National Express-run c2c line despite the jobs carnage in the City.
Cannon St/Charing Cross: Passenger growth has slowed to around zero on Southeastern, operated by Go-Ahead. Its passengers have borne the brunt of some of the largest year-on-year rises in commuter fares, raised to subsidise the new high-speed trains that will from later this year take east Kent commuters to St Pancras.
Victoria: Passenger numbers have dived on Southern Railways line, run by Go-Ahead, and passenger revenues are down about 10% on the Gatwick Express. Heavily subsidised Southern is to be relicensed from September.
Waterloo: Stagecoach has warned that South West Trains will slump to a “significant operating loss” unless the Government agrees to start bailing it out. It is supposed to be paying excess profits to the Treasury of £460 million in the four years from 2010. SWT also argues the millions it makes from station car parks should be not counted as railway revenue.
Euston: Virgin Rail's decade-long disaster on the West Coast Main Line continues. Disruption has restricted passenger growth to just 0.5% on the Virgin-Stagecoach joint venture which, at £1.2 billion over the next five years of handouts, is the most heavily subsidised train company on the network.
St Pancras International: Passenger numbers have collapsed 11% on the chronically loss-making Eurostar service.
Reader views (11)
This article is nonsense. The payments are covered by the contract between First and the government; if profits exceed a certain level the government gets a bigger payment, if they are lower the government gets less. What's wrong with that? Remember that First do not get a subsidy; they pay the government for the privilege of running the trains,.
- Oliver, Exmouth
Graham, these bail outs as you rightly say have been going on for years. We, the travelling public have been fleeced for years, and not just by the railways. How many transport companies hedged their fuel bills at a rate lower than Joe public could buy fuel for, yet their fares still went because of increased costs. Some even getting subsidised from govt/local govt because they went cap in hand bleating. No one in the Public sector has looked into anything, they think yes fuel has gone up, when in reality it is fixed at rates of two or more years ago, and so just wave any claim through. Transparency? about as transparent as MP's expenses!
- Al, carlisle uk
Dear Graham, Lewes, East Sussex.
I don’t use Trains anymore; they are far to expensive for me now; gone are the days of cheap day returns to the seaside; something you may not remember, but they were real, once-upon-a-time; under the Nationalised Rail System etc.
But talking of winging; ask the average rail user today why they are winging; could it be cost, or just plain bad services etc?
As to the tax payer being the winner; I personally can’t see how?
Remember also the Hotels, and vast amounts of railway land sold off by the privatised rail companies; the tax payer never got a penny of that profit; because the tax payer no longer owned the Rail System that it had bought and paid for over many decades etc.
But it is nice to see that you admit that if the recession lasts a yet, the tax payers will get screwed once again; how kind of you to mention that; we were not aware of it?
I am assuming you have interests in the private rail companies; I hope your job doesn’t suffer unduly, or you need to find another job; its hard out there Graham; good luck; we don't want the tax payer supporting you either.
- Mickyinlondon, london
I reiterate: Joe Public knows 5% of what is going on in Downing Street.
If politicians were as clever at running the UK economy as they are at sticking their greedy snouts in the trough of taxpayer's cash, everyone in the UK would be a millionaire.
- Reuben Camara, Morecambe/Lancaster
"Instead they want us to pay increasingly unrealistic sums and reduce the service to as little as possible as they can get away with.
- Sibodkent, Gravesend, KENT"
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You've described privatisation perfectly; Pay MORE for LESS.
- Kate, London
Mickyinlondon, and Ted of London are quite right. Privatise the profits and socialise the losses. Once more the over powering stench of corruption.
- Fred, Horsham
These "cap and collar" deals have been around in the transport industry for years. When times were good (up to a year ago) and the transport companies were benefiting from a growing economy, they were paying massive additional sums to the Government over and above their contractual premium payments. No one was wingeing then.
Now the situation is reversed and they are starting to get the advantage of the protection the same deal offers.
At the moment, the taxpayer is the winner, not the loser. That will only reverse if the recession lasts longer than the boom that preceded it.
- Graham, Lewes, East Sussex
I though these train companies were privatised because the private sector is more efficient than the public sector was etc.
Mind you the State had to nationalise the railways long ago; when the first private companies went broke.
Then they were sold off cheap under Thatcher; after the tax payers had saved and built up the railway system; only to see the much idolized private sector is now once again begging the tax payers to bail them out all over again; and we will of course; got to keep the old boys network in highly paid work; even if they are all thick-heads and usless.
- Mickyinlondon, london
More proof that that the country is mired in financial skulduggery. Private company signs contract to provide basic public service, does not make as much money as expected despite rapidly increasing it's prices to consumers, goes to government to complain and ends up getting more cash.
This is the stink of corruption that pervades the entire country, whether it's the majority of tax payers funding the profits and covering the losses of the chosen few in the banking industry, to deals being done with the upper management of massive companies that also make a profit off the British tax payer.
Who is protecting the normal person in these deals, who is making sure that we get the best possible service for our money, who is ensuring that the tax payer isn't getting ripped off?
The answer-no one is. Politicians and upper tier management are doing one thing only, and that is siphoning off the cash from us to line their own pockets. This country is broken and stinks of corruption at the highest level, with the middle class tax payer footing the bill every time.
- Ted, London England
Just goes to show the governments policy of trying to reduce taxpayer subsidy is just broken and flawed. We NEED trains, and they need to be cheap and of a reasonable quality. If Germany, France, Belgium, Sweden, Denmark, Italy, Switzerland, Norway, etc. can manage it with heavy government subsidy, then so can we. Encourage people off the road, and air - for sure, but make it cheap, convenient, and fit for purpose.
Instead they want us to pay increasingly unrealistic sums and reduce the service to as little as possible as they can get away with.
- Sibodkent, Gravesend, KENT
So like all other businesses at the moment, when times are good, rail companies whack up ticket costs and pay record bonuses to senior staff. When passengers no longer pay extortionate fares they go cap in hand to the taxpayer, so we end up paying anyway!
- Mcw, London
