British Rail 'profit' figure masks doubling of subsidy

CHRISTIAN WOLMAR

Transport Correspondent

The controversy over rail finances was highlighted yesterday with the publication of British Rail accounts for 1994/95 which show the organisation made a profit of pounds 362m, due to a government subsidy of over pounds 2bn.

As these are the first accounts to cover the period after BR finances were reorganised in preparation for privatisation, they are not comparable with any previous year's figures and offer few pointers to BR's performance. They are also distorted by the effects of the signal workers' strike which affected 23 days last year. It was estimated to have cost the industry pounds 173m, but most of this fell on Railtrack which had to pay BR pounds 140m in compensation.

Largely as a result of the strike, both the number of passenger journeys and the amount of freight carried fell by over 5 per cent. Many passengers who were affected by strikes have not returned to the railways.

John Welsby, the chairman of British Rail since 1 April, warned that the level of investment in railways "has not been maintained at a level sufficient to sustain the industry in the future". Indeed, there was only pounds 617m investment in the railways last year, excluding Channel tunnel-related developments, the lowest level since the 1960s, and much lower than the early 1990s average of pounds 1bn per year.

Mr Welsby also accepted that services had deteriorated in the first few months of the "bedding-down" process of the new structure but said that "performance against the timetable was recovering by the end of the year".

The reason for the profit, compared with last year's loss of pounds 108m, is that subsidy to the railways was increased to pounds 2.1bn, double the year's previous total, but this was partly offset by the pounds 330m that BR returned to the Treasury.

James Jerram, the board member for finance, explained that under the new structure for the railway - it has been split up into Railtrack, 25 train operating companies, three rolling- stock companies, 20 maintenance organisations, and about 45 other companies - each one has to be commercially viable and profitable in readiness for privatisation. Moreover, each part of the old BR now receives sufficient income, thanks to the extra subsidy, to pay for its own future investment.

However, Mr Jerram warned that the new structure would be a "shocking waste" of public funds if the companies, when privatised, fail to invest that extra cash back in the railways. In particular, the three new rolling- stock companies, due to be privatised later this year, would have between pounds 300m and pounds 400m surplus cash each year and unlike Railtrack, are not under the aegis of the Rail Regulator, and may, according to Mr Jerram, "invest in anything from Tupperware parties to Venez-ualan engineering companies". Privatisation has cost British Rail pounds 180m in the past three years, including pounds 85m in 1994/95.