It could be argued that the subsidy quoted by the Department for Transport for passengers on Northern Rail services is helping to pay for infrastructure development such as Reading station, recently opened by the Queen but shown here under construction.
Last week the DfT issued new subsidy figures, after criticism by rail campaigners that the subsidy figures used in the DfT Stakeholder Consultation for the TransPennine Express Rail Franchise and the Northern Rail Franchise assumed the same costs for a Pacer as a Pendolino.
The new figures themselves are not very different, showing a subsidy per passenger mile for Northern Rail of 51.5 pence for 2013-14. This is made up of 25.8 pence subsidy direct to Northern, and 25.7 pence Network Grant paid to Network Rail.
The difference is in the way the figures are calculated. The new figures for the Network Grant subsidy are apportioned by fixed track access charges. Fixed track access charges are calculated on the basis of timetabled vehicle miles, but do not depend on the type of vehicle (only variable track access charges do that). However the type of vehicle is reflected in the calculation, because 70% of the costs which make up fixed track access charges are made up of renewals and maintenance costs which are disaggregated to 307 route sections - so fixed track access costs will be reasonably representative of real costs as the renewals and maintenance costs will depend on the type of traffic and hence vehicles using those route sections.
So far so good - but over 80% of the cost paid for by the network grant (£4Bn) is interest on NR's debt (£1.5Bn) and depreciation (£1.8Bn), aggregated at a national (England and Wales) level. These charges are the result of past investment in enhancements and major projects, most of which have been in the London area or on inter-city lines, which should have made those lines more operationally cost-effective and so reduced fixed track access charges.
Using operational costs as a basis for apportioning finance charges is fundamentally unsound. Northern are hit by a double whammy of paying for investment in the south, and then paying more because that investment has made the south more cost-effective. The only fair way would be to apportion those finance costs to the route sections where the investment was made, then to the train operators by vehicle mileage over each route section.
The nearest Northern Rail services come to Reading is a once-per-day service at Derby, 137 miles away.
DfT: Rail subsidy per passenger mile
ORR: GB Rail Industry Information 2012-13 report Figure 1: Industry income, expenditure and government funding in 2012-13
Periodic Review 2008 Determination of Network Rail’s outputs and funding for 2009-14 - refer paragraph 19.122 onwards for calculation of fixed track access charges