Private rail firms get extra £1.5bn in subsidies

Britain's ramshackle rail network was facing a fresh financial crisis yesterday as it emerged that train operators have been handed an extra £1.5bn in state subsidies.

The private companies running Britain's train services were supposed to have received £2.7bn of taxpayers' money over the past three years. But, according to figures supplied to The Independent, they have soaked up £4.2bn because the state subventions, which were supposed to decline year on year, have shot up. The figures show that the Transport Secretary, Alistair Darling, will be forced to deal with a considerably larger financial black hole than previously thought.

The scale of the deficit emerged as bank holiday rail travellers faced 72 hours of severe disruption from today caused by Network Rail's decision to close sections of major lines for repairs.

The Government's attitude to the railways came in for further criticism yesterday when Kim Howells, the Transport minister, was accused of belittling the significance of recent rail crashes. Mr Howells said Britain treated such accidents as "the end of civilisation", a remark condemned as "ill-timed" by groups representing survivors of the Paddington crash.

Handouts to the train operators this year will come to £1.7bn, some £1bn more than planned when the franchises were let, according to data compiled by the Rail Industry Monitor. Financial turmoil in the industry has meant that nearly one in four of the operators is technically insolvent and the Strategic Rail Authority (SRA) is in effect running them.

Chris Cheek, a director of the TAS Partnership which publishes the monitor, said the industry was heading for extreme financial difficulties. "This growth in subsidies presents the SRA with a major problem," he said. The Treasury needed to release considerably more money if the industry were to avoid a crisis, he added.

Mr Cheek said one of the root causes of situation was the over-optimism of businesses submitting proposals for franchises in the mid-1990s. The new operators believed that the state-owned British Rail was run so inefficiently that they would be able to slash spending. They have since been proven wrong. In particular, operators have been faced with far higher labour costs than they expected.

Roger Ford, industry editor of the specialist journal Modern Railways, said that contrary to expectations the privatised railway was significantly more expensive than its state-owned predecessor. "This year it will receive twice more in subsidies than British Rail ever got in a 12-month period," he said.

News of the approaching financial crisis among operators follows revelations about an explosion in costs at Network Rail, the state-backed organisation that maintains the infrastructure. The industry as a whole - train companies and Network Rail - is soaking up taxpayers' money at an alarming rate. As part of the Government's 10-year plan, the Deputy Prime Minister set aside £14.3bn for public subsidies for train operators and the infrastructure company between 2001-02 and 2010-11. At current rates all the money will have gone by about 2006.

Jonathan Bray, assistant director of the Passenger Transport Executive Group, which represents regional transport authorities, said the soaring costs associated with the current system was threatening its viability. "We are concerned that socially necessary rail services will suffer unless a more efficient and inexpensive way can be found to run the railway," he said.

A spokesman for the authority said that the main cause of spiralling subsidies was the rail regulator's decision to increase the charges which operators pay for access to the track by 5 per cent each year. Under franchise agreements, the SRA has to meet such costs. The spokesman added, however, that another reason for a rise in state spending was poor financial management on the part of train companies.