As the table shows, it was split between the passenger train operators, who received £4,060 million. The balance was accounted for by grant payments to Network Rail and Network Rail, who received grant of £8,373 million, a 5.5% increase and £20.7m worth of freight grants, a 3.3% real increase.

The £12,454 million total was 0.9% lower than in 2022/23 but 56% higher than the figure in the last pre-Covid year of 2018/19. Then, support for passenger services was just £523.2m, so it has risen by a factor of almost 7.5. Previously, for eight years between 2010 and 2018, the passenger train operators were net contributors to government through the payment of premia.

The figures also show capital spending of £9.642m, the bulk of which (75%) went on HS2, with another £98m on the East-West Rail project. Spending on enhancements for the rest of the rail network totalled £2.7 billion, 6.6% up on the year but down by almost 73% on the figure for 2018/19.

Government Support for the Rail Industry Compared

Total passenger income during the year was £10.8 billion, a rise of 12.9%. Operating costs totalled £14.5 billion, 4.1% up, leaving a £3.75 billion deficit. This represented a 15% improvement on 2022/23. After payment of the government revenue support, train operators were left with an operating profit of £316m, at a margin of 2.9%. This gave the train operators a 2.2% uplift on operating costs.

Despite the substantial growth, ticket revenue figures remained below pre-Covid numbers, though the gap narrowed significantly during the year. In 2022/23, gap was 35%. This year, it had narrowed to 19.8% - a shortfall of just over £2.5 billion. Other income remained 46% short of pre-Covid levels, meaning that total revenue remains 22.3% short of full recovery. Costs, meanwhile, were 2.7% higher than before the pandemic.

The figures also give some breakdown of operating costs, enabling us to look at both their movement and the percentage breakdown. Highlights include:

• The largest component was staff costs, which, at £4.1 billion, represented 28.2% of the total. The real-terms cost was 3.9% higher than 2022/23, but only 0.2% up on 2018/19.
• Track access charges paid to Network Rail totalled £3.99 billion, accounting for 27.4% of the total. The figure was 10.0% up on the year, and 14.5% higher than pre-Covid.
• Rolling stock charges were the third highest component, on 22.9%, giving a total figure of £3.33 billion. This represented an increase of 1.8% over the previous year and 9.4% over 2018/19.
• Diesel fuel is the smallest component identified separately, accounting for 2.5% of total costs. The £404 million total was 11.3% down on the previous year, but 3.3% up on 2018/19’s figure.
• The balance of costs, comprising 19.0%, covered other operating costs. The total, at £2.76 billion, was 1.7% up on the previous year, but 13.5% below 2018/19.

Looking at sector performance, the InterCity operations saw real revenue growth of 12.9%, whilst operating costs rose by just 0.5%. The subsidy requirement fell by 48.5% to £496m, but income remained 23.3% below the 2018/19 total.

London and the South East (excluding the Elzabeth Line) saw lower revenue growth, achieving 8.6%. Operating costs were 4.8% higher, and the subsidy requirement fell by 6.8% to £1.32 billion. Income remained 29.8% below pre-Covid levels. The Elizabeth Line earned revenue of £621m, against costs of operation of £607m. Despite this small surplus, a subsidy payment of £91m was made by TfL.

The regional franchises saw revenue growth of 11.0%, whilst costs rose by 6.1%. The subsidy bill totalled £2.15 billion, up from £2.05 billion a year earlier.

Amongst individual TOCs, the largest subsidy was paid to the state-owned ScotRail, at £773m. This public support covered 70% of its total operating costs, with the passenger and other income of £335m covering the operation’s labour costs with £11m to spare. The subsidy was up from £737m a year earlier, and from £528m pre-Covid. The income figure compared with £274m in 2022/23 but still 31% short of the £443m earned in 2018/19.

Also topping the £600m figure was another state-run business, Northern. Here, total subsidy of £652m paid for 64% of operating costs. The passenger and other income of £381m managed to pay for 92% of the wage bill. The subsidy bill was up from £636m in 2022/23 and compared with the £428m paid in 2018/19. Income growth of 7.3% was achieved over the previous year’s total of £355m, but still fell 16% short of the £457m received in 2018/19.

At the other end of the scale, two franchises, West Coast Main Line and East Anglia, made premium payments to the DfT. West Coast, run by a FirstGroup/Trenitalia joint venture, remitted £67.2m to government in 2023/24, compared with receipt of £97.0m in subsidy in the previous year. The turnround came as revenue grew by 17% to reach £1.09 billion, outstripping the 1.7% increase in operating costs.

East Anglia, run by Transport UK Group in joint venture with Mitsui, paid £57.8m to DfT. This payment was the second successive one and was more than double the £27.6m paid in 2022/23.  However, a continuing revenue shortfall of 20.9% meant that the premium fell well short of the £232m paid to government in the last pre-Covid year. The company’s £687m worth of income compared with £638m in 2022/23, a gain of 7.7%.

The highest proportional revenue growth was the 14.6% achieved by West Coast, discussed above. Next came ScotRail, now owned and operated by Transport Scotland, which saw an increase of 13.6% – although, as we have seen, this did not prevent the need for an increase in subsidy.

In contrast, Transport Scotland’s latest nationalisation – Caledonian Sleeper – saw the poorest revenue performance, with an 18.7% decline, down to £24.8m from £30.5m a year earlier. However, this was offset to some extent by a reduction of 11.5% in operating costs to £54.4m. As a result there was an 8.2% fall in subsidy levels to £29.6m.

Also in decline was Merseyrail, the Serco/Transport UK joint venture, which saw income fall by 8.4%, taking the revenue down to £71.2m. However, the ORR figures show this was the result of a fall in “other income”, whilst income from ticket sales was actually 9.9% ahead at £45.2m. However, despite the growth, ticket sales remained 27% down on pre-Covid levels.

Comment

The ORR’s figures paint a fascinating picture of an industry still in recovery from the shocking events of five years ago, and the pandemic’s ongoing consequences.  We see an industry grappling with ongoing falls in commuting and business travel, depriving the industry of season ticket and first class and full price revenue.

The year 2023/24 was saw yet more economic and political turmoil, with high inflation and a continuing cost of living crisis. At the same time, ongoing industrial action and poor performance in several companies further damaged the industry’s reputation. It is tempting therefore to suggest that the numbers could have been a great deal worse.

The continuing need for over £12 billion a year in revenue support for the industry is a major concern for the Treasury grappling with a difficult public spending round. Particularly worrying were the above-inflation cost increases – with labour costs leading the way on 3.9%. And that’s before the bill lands for the incoming government’s generous pay settlements last summer.

There are already reports of cuts in capital spending being included in the comprehensive spending review currently under way, abandoning all enhancement spending outside HS2 and East-West Rail. As these figures show, such spending on the main network, worth around £2.3 billion last year, is already 42% down on pre-Covid levels. Meanwhile, £2.2 billion, or around one-third of the government’s grant, goes in servicing Network Rail’s £60 billion debt. Presumably Great British Railways will have to shoulder that as well as other ongoing obligations such as to rolling stock leasing companies.

On top of these mounting bills comes HS2 (£36 billion and counting) and East-West Rail. The TransPennine Route Upgrade is not presently shown separately in the figures, but is expected to cost another £12 billion or so, depending on the eventual scope.

When the newly nationalised Great British Railways organisation is eventually established, the financial challenges it faces will be huge – something that would have been very familiar to the BR senior managers of old. Proponents argue that cost savings and better focus will come from a simplified industry structure. However, they would do well to remember that one of the main reasons for privatisation in the first place was the Treasury’s inability or unwillingness to fund investment in public transport and its infrastructure.  

Also published in Passenger Transport magazine