After nearly a decade of paying a net premium to the Department for Transport (DfT), in 2018-19 the franchised train operating companies (TOC) reverted to collectively requiring a subsidy. In its annual financial review for the year, the Office of Rail and Road (ORR) had this reassuring comment about the change: ‘The increase is largely because of policy decisions in PR13 about how the industry is funded (the balance between network grants and access charges) rather than wider performance issues’.
PR13 was the 2013 Periodic Review by ORR which set Network Rail’s income for Control Period 5 (CP5). This would run from April 2014 to March 2019. One outcome of a Periodic Review is how Network Rail’s income is divided between the fixed and variable track access charges (TAC) paid by train operators and the direct grant from the DfT.
SPLIT INCOME
Because it can lead to irrational optimism over the profitability of franchises, this split funding requires a note of explanation. When Railtrack was privatised in 1996, all its income came from TAC. The theory was that if Railtrack failed to meet the requirements of the operators, on whose access charge payments it depended, it would lose money. The share…
