Select Committee on Transport Fifth Report

2 The costs of rural lines

8. It is almost certain that all of the services we discuss are subsidised, but it is extremely hard to quantify this. In 1968 the then Transport Minister, Rt Hon Barbara Castle MP, introduced a subsidy payment for each unremunerative rail line in recognition of its social value. These payments were consolidated into the Passenger Service Obligation Grant under the Railways Act 1974, which lasted until they were replaced by franchise support payments introduced for the privatised railway in 1996-97. These are paid at an aggregated level and it is difficult to quantify the subsidy for a particular service.

9. The SRA community rail strategy sets itself two criteria for success:

• the reduction of the gap between earnings and allocated costs
• reduced government subsidy per passenger journey.[12]

The SRA estimates that the total cost of its community rail network is £300 million per annum, including overheads - by comparison, government support for the rail industry in 2002-03 was £2.6 billion.[13] But there are huge uncertainties in this estimate. As the SRA says "costing community rail operations is difficult as there are few reliable records of local expenditure as almost all routes operate as part of a larger entity."[14] The Community Rail Strategy goes on to note that "both train operations and infrastructure maintenance are generally accounted for at an aggregated level, so there is always an issue of how much of the shared costs should be allocated to any individual route." [15] Track access charges, which we discuss in more detail below, are similarly not allocated on a line by line basis. The difficulty in allocating costs will apply to all lines, not just those chosen for designation by the SRA.

10. The Community Rail Development Strategy suggests that some of the costs allocated to rural lines are inflated. It found that the avoidable costs associated with infrastructure renewal were substantially lower than initially estimated. Some overheads were inevitable whether or not lines were closed. Moreover 40% of renewal costs related to structures such as coastal defences, bridges or earthworks and similarly could not be avoided whether or not the line remained in use.[16]

11. The difficulties in allocating costs are mirrored by difficulties in allocating revenue to individual lines. There is little difficulty where a journey is limited to a single line, but when a journey begins on one line and proceeds on another, the revenue is allocated by mileage. This is logical enough, but in fact if a traveller cannot begin a rail journey on a feeder line, that journey may not be made at all, or may be made by another method. Analysis of four lines by the SRA showed that the ticket prices allocated to rural lines on a mileage basis covered 11% of costs, but the associated revenue (the revenue at risk if the line was not there) was 32% of costs.[17]

Line closures

12. The ultimate way of reducing costs on rural railways is to close lines. The SRA's consultation document said that "closure of rail infrastructure is not part of Government policy nor the Secretary of State's Directions and Guidance to the SRA" and that "closures leave huge residual liabilities which have to be managed." However we detected a change in tone in the final strategy document which stated that, "It (the SRA's strategy) may be the only opportunity to give many of these lines a sustainable long-term future." Tony McNulty MP suggested, when pressed, that there might be closures:[18]

"Chairman: ……….. Put simply: is your strategy going to be to get the most out of an existing asset, because you have got to keep it anyway, or are you really saying, "We are really concerned about community railways and this is their last chance to convince us that they really have a role to fulfil"?

Mr McNulty: I suspect, without sounding like a Liberal Democrat, a bit of both, but probably in an 80/20, 90/10 split, given that ----

Chairman: Which way is the 90 and which way is the 10? Forgive me.

Mr McNulty: Ninety for the former part of your statement and 10 for the other part.

This concern has been increased by the provisions in the Railways Bill, presented to Parliament on 25 November 2004, which make the railway closure process easier.

13. Closure of rural lines would be shortsighted: they can be extremely important feeders to the main line network. The SRA strategy document pointed out the one third of Great North Eastern Railway's (GNER) passengers come from feeder services.[19] Centres of population change and lines that were once proposed for closure, such as outer suburban routes to Ilkley and Skipton in Yorkshire, are now electrified and running at near capacity. The revived Penistone and Settle to Carlisle lines also survived attempts at closure.

14. It is only possible to take sensible decisions about the long term future of rural lines if their true cost is known. That does not mean nothing can be done now; we agree there is no need to have precise allocations of cost or revenue before taking action to reduce the subsidy per passenger on rural or community lines. It does mean that radical decisions about the closure of particular lines cannot be made without far more robust financial information. Closing local railway lines will inconvenience the travelling public, reduce patronage on mainlines, and increase pollution as passengers turn to the car. It can only be justified if it is clear that it will make significant savings.

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12   SRA strategy document para 1.3 Back

13   Ibid para 1.7 Back

14   Ibid para 1.5, p 5 Back

15   Ibid para 1.5, p 5 Back

16   Ibidpara 1.5, p 6 Back

17   Ibid para 1.6, 1.8 Back

18   Qq 424, 425 Back

19   SRA strategy document para 2.12, page 21 Back

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Prepared 15 March 2005