High track charges could push up rail fares: Battle with Treasury over extra subsidies

THE cost of running trains will rise sharply from 1 April when the rail network is split up in preparation for rail privatisation.

Railtrack, which takes over the rail infrastructure from British Rail on that day, is fighting the Treasury for extra subsidies for train operators to avoid fare rises or cuts in services.

This row caused the postponment on Thursday of an announcement by John MacGregor, the Secretary of State for Transport, of the track charges regime for rail privatisation until next week.

High track charges will result in all lines being loss-making and requiring subsidy, which makes privatisation unattractive for potential private operators. To counter this, ministers have decided that franchises will be for a 15-year term, with a seven-year break clause and will be exclusive. Opponents of privatisation point out that this eliminates any prospect of competition on the railways, one of its original aims. There have also been delays in other aspects of the privatisation programme, which is now very unlikely to start until 1995, when the Gatwick Express service is franchised out. The guidance for the new Railway Regulator which had been expected in December has not yet been published and the schedule for franchising out the 26 train operating companies has not yet been announced.

The failure to publish track charges has also meant that the initial figures for the first and so far only 'shadow franchise', Gatwick Express, are incomplete, and likely to delay its privatisation beyond the target date of October.

The Department of Transport and Railtrack have been searching for a solution to the problem of how much to charge train operators, initially British Rail but later on private operators as well, for the past 18 months. They have been unable to find a solution that will not push up fares dramatically while still giving Railtrack a rate of return on its pounds 7bn assets.

According to Roger Ford, technical editor of Modern Railways, the cost of track charges to BR is about pounds 1.25bn. Added to this will be the cost of new investment of pounds 500m and a further pounds 350m if a rate of return of 5 per cent, as expected, is required.

Mr Ford said: 'This is a rise of around 75 per cent and the cost will have to be met by increased subsidy or from higher fares.'

For example, on the Great Western lines from Paddington to Bristol and Wales, one of the earliest routes earmarked for franchising out to a private operator, track charges are expected to double.

The track charges issue is particularly important for passengers in the seven metropolitan areas covered by passenger transport executives - West Midlands, West Yorkshire, South Yorkshire, Merseyside, Strathclyde, Tyne & Wear and Greater Manchester.

Representatives from the PTEs will next week be told by Railtrack that they face increases of between two and three times their current charges. Phil Worrall, chairman of Centro, the West Midlands PTE, said: 'At the moment we get around pounds 20m in subsidy and pounds 20m from fares. We expect that we will need pounds 60m in subsidy next year to cover the extra cost of track charges.'

Roger Freeman, public transport minister, has assured PTEs that they will be fully reimbursed in the first year. But Mr Worrall said: 'What happens after that is unclear. Although we have been promised the costs will be met through local authorities, there is no guarantee this will happen. We expect there will be enormous pressure to make cuts.'

Brian Wilson, Labour's transport spokesman said: 'Rail privatisation is running into the buffers of financial reality.'