The future of GB Rail: a new golden age or an underfunded disaster?
We review the prospects in the light of the latest market statistics
When the Office of Road and Rail published the latest quarterly rail statistics in December 2024, it must have felt like an early Christmas present for the industry: a 9% increase in passenger journeys during the June-September quarter, meaning that 36 million more passenger journeys were made in the 12 weeks than in 2023. Nationally, the total moved to within 99.3% of the pre-Covid total for the quarter.
More importantly from the Treasury’s point of view, quarterly income was 10.8% higher in real terms at £2.9 billion, putting an extra £284m into the coffers.
The quarterly figures meant that patronage had grown by 12% in the twelve months to 30 September, the total of 1.68 billion being 97.4% of the 2018/19 figure. This brought the rolling annual revenue figure to £10.8 billion, representing real-terms growth of 12.9%. That meant an extra £1.2 billion, potentially reducing the £4 billion subsidy bill with which the government had been faced for the previous two years.
What a great, positive curtain-raiser to the industry’s celebration of its 200th anniversary in 2025. It almost seemed too good to be true. And in a sense, it was.
For a start, the gilt on the Treasury’s gingerbread was tarnished by the fact that a goodly chunk of the revenue growth belonged to other players in the field, and not them. Of those 36 million extra journeys, 6.1 million of them belonged either to TfL or the open access operators. The Elizabeth Line, for example, maintained its growth during the quarter, carrying an extra 5.7m passengers, representing a 10.2% increase. This hugely busy route carried 234m passenger journeys in the year to September, around 17% above forecast. Taken together, the Elizabeth Line and the London Overground lines mean that TfL is now earning around £850m a year in rail revenue and the routes account for just under 25% of national patronage.
The bits of the network that government does control carried 325m passengers during the quarter, 10.2% ahead, bringing the annual total to 1,251m, 11.2% up. However, the slightly less good news is that the quarterly number was still 13% below pre-Covid levels, and five major TOCs were still more than 20% below their 2018/19 patronage. Looking at the rolling year, the shortfall was still 16%, again with five still more than 20% short.
To the casual observer, the fact that total patronage is almost back to 2018/19 levels should mean that the crisis is over. After all, the last time we were at this sort of patronage levels, a decade ago in 2015, the government was making an £800m+ annual profit out of the passenger railway. So what’s the problem? Well, several, actually. The first is to do with the shifts in the market, specifically the loss of commuter and business traffic and the second to do with the consequential shifts in revenue yields – so that the network is earning less money from the same number of passengers. And thirdly, there is the question of cost.
Before the pandemic, season ticket holders accounted for 52.4% of total demand on the railway. That’s 619m journeys covering 16.1 billion passenger kilometres (km), contributing £2,684m in revenue, giving a yield per passenger kilometre of 16.65p in the year to 30 September 2018. In the year to 30 September 2024, the season ticket market share had dropped to 218 million journeys, just 22.7% of the total, covering 5.4 billion passenger km and earning revenue of £874m at 16.08p. That’s 67.4% less revenue from 64.8% fewer passengers and a 3.4% fall in the yield from each of those who are left.
The number of anytime/peak ticketholders accounted for 36% of passengers in 2018. That was 425 million, covering 12 billion passenger km, earning £3,765m at a yield of 31.39p. In the most recent period, the number of passengers had risen to 534 million, but only travelled for only 6.3% more passenger km, whilst the revenue had actually fallen to £3,441m at a yield of 27.00p. That’s 25% more passengers but a revenue loss of 8.4% and a yield reduction of 14%.
Only two ticket categories show a real increase in revenue since the last pre-Covid year – advance purchase tickets and off-peak tickets. Advance purchases yield 13.01p, down by 10.8% from 14.59p. Passenger journeys by this ticket type have rocketed by 72.6%, but the growth in passenger kilometres has been much lower at 25.8%. Revenue, meanwhile, has only grown by 12.2%. Sales of off-peak tickets show a similar pattern, with a 21% increase in passengers, but just 9.5% in passenger km. Revenue growth is restricted to 3.5%, with yields 5.5% lower at 16.26p.
In many ways, the issue of rising costs is just as serious as the revenue shortfall. After adjustment for inflation, franchised operator costs were 22.9% higher in 2023/24 than in 2015/16 – that’s a rise of £2.7 billion. In other words, rising costs account for more than half (53%) of the £5 billion deterioration in the passenger rail sector’s finances since 2015/16, with the balance caused by the loss of revenue we’ve already discussed.
Looking at the costs in more detail, labour costs rose by 11.1%, but this was largely due to an expansion in the workforce. The total went from 56,543 to 62,908, a rise of 11.3%. That means that the real-term cost per employee, at £65,130, has remained steady.
Track access charges rose by more than 120% over the period to £3.99 billion – an increase of £2.22 billion that accounts for the lion’s share of the total rise in operating costs.
Rolling stock leasing costs also saw a hefty increase across the eight years, going up by £1.46 billion (78%) to a total of £3.33 billion – mainly associated with the delivery of huge fleets of new rolling stock, including the new InterCity fleets for LNER and GWR, the total replacement of the Greater Anglia and Merseyrail fleets and orders for six other TOCs.
Amongst other costs, there were savings of £1.35 billion as the total fell by 32.8% to £2.76 billion. Spending on diesel fuel, where reported separately, also fell, by 10.9% to £360m.
So what does this mean for the future of the industry? I suppose the first thing is that the change of TOC ownership is most unlikely to make any difference to the fundamental financial position.
A revival in commuting seems unlikely, given the state of the economy and falling employment levels, especially since ONS figures show unchanged numbers of home and hybrid workers. Retail continues to struggle in the face of online competition, whilst demand for business travel is affected by online meeting tools and the growth of AI. Taken together, these factors are likely to continue to depress revenue yields even if the number of journeys for other purposes keeps growing.
On the expenditure side, there is the cost of last year’s 15% pay settlements, plus the hike in national insurance, expected to cost TOCs upwards of £36m. Ongoing high electricity prices have an impact too. In 2023/24, Network Rail’s energy costs – including electric current for traction – ballooned by 37% to £961m. Lurking in the background are Network Rail’s annual £2.6 billion interest costs on its £60 billion debt pile.
Further fleets of new trains will need to be acquired and paid for, including the new EMR InterCity units under construction and the HS2 fleet. Also due for replacement is the entire stock of 1980 and 1990s Class 15x diesel units and the Networker commuter trains – both electric and diesel variants.
And then there’s Network Rail – under fire again once more last week by ORR and the Railway Inspectorate for on-track safety breaches and failure to meet its own asset management targets. Back in public ownership for over 20 years, the company continues to attract opprobrium for its high costs, bureaucracy and sluggish performance. At the same time, however, its budget has repeatedly been the subject of Treasury cuts despite its agreed five-year plans – most recently by then Chancellor Rishi Sunak in December 2020, who cut £1 billion (9.6%) off its 2019-24 enhancement programme.
There are reports that this will happen again this year. Press speculation in January suggested Chancellor Rachel Reeves would cut back on all enhancement projects except HS2 and East-West Rail until after the current Control Period, which ends in 2029. Despite all the promises about infrastructure investment in the run-up to last year’s election, and need for the private sector involvement, the first thing they did was to cancel the Restoring our Railways scheme and boot the private sector out of train operation.
To those who worked in the nationalised industries of the past – including British Railways – this will be a depressingly familiar story. Short-term Treasury fixes to its own macro-economic priorities at the expense of vital investment projects with a proven business case. Given the state of the many elements of our public realm, including the courts, the prisons, armed forces, the NHS and the social care system, none of this bodes well for the future.
First published in Passenger Transport magazine.