Many commuters are also set to suffer more overcrowding until fresh investment provides new carriages on busy routes, warns the report by the National Audit Office, published today. In 2006, the last date for which information was available, trains travelling to and from London at peak times were carrying 3.5 per cent more passengers than they were designed to carry.

Fares regulated by government have been rising by 1 percentage point above retail prices since June 2003, the report adds. There have also been sometimes substantial increases in off-peak fares - including a 20 per cent increase in some fares on South West Trains.

"Although there will be some service improvements, passengers overall will pay more," the report says. "Crowding will increase for many commuters until expected investment delivers more carrying capacity."

The report examines the Department for Transport's hand-ling of competitions to run eight rail franchises, from 2005 to 2007. The franchises were the first let by the DfT after taking over responsibility for the process - where train operators bid to run services on a set route for a set time - from the abolished, semi-autonomous Strategic Rail Authority.

The SRA's abolition and the bringing of the franchising process into the DfT have been deeply controversial in the rail industry, with widespread accusations that the department has been over-prescriptive in the terms set out for franchisees.

The £811m subsidy paid to the eight franchises examined in 2006-07 was projected to turn into a £326m payment from the operators to government in 2011-12, the report says. The franchises involved currently operate as South West Trains, Southeastern Trains, First Capital Connect, First Great Western, East Midlands Trains, London Midland, Arriva Cross Country and National Express East Coast.

Despite falls in payments to train operators, the rail industry still receives an overall government subsidy because of direct payments to Network Rail, owner of the network. But the overall proportion of costs paid by taxpayers rather than fare-payers is set to fall.

The continuing reduction in taxpayers' share of costs depends on continued strong growth in passenger numbers, the report says. Clauses in train operators' franchise agreements protect them from some of the cost of lower-than-expected revenues, just as the DfT gains if revenues are higher than expected.

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Recession could derail government plan to cut subsidies for train firms

The Guardian: October 15 2008
Dan Milmo

• Lengthy downturn would endanger funding
• Rail passengers face more above-inflation fare rises

The government could be forced to pump more cash into the railways if slowing economic growth drives down passenger numbers, the state spending watchdog warns today.

The National Audit Office (NAO) says a planned multibillion-pound cut in rail subsidies will be threatened if train operators cannot deliver the high customer numbers promised in their franchises. Its comments follow a warning by a former cabinet minister that the government may need to recapitalise rail companies if a severe downturn threatens income.

South West Trains, First Great Western and National Express East Coast have promised more than £1bn each to the Department for Transport over the next decade under their contracts to run services along some of the busiest lines.

The NAO becomes the latest organisation to question whether government rail spending plans over the next five years can withstand a downturn. TAS, a leading transport consultancy, has warned that rail funding would be a "serious problem" if there were a long recession because the majority of funds come from ticket sales.

In a report on the rail franchise system out today, the NAO says the DfT could be caught out if passenger numbers fall because the department is expected to make up much of any deficit in franchise payments. "The [franchise] bids assume continued high passenger growth. Slower growth would lead to subsidies falling by less than projected," the report warns.

Last week Peter Hain, the former work and pensions secretary, said the government should draw up contingency plans to rescue troubled rail and utility companies. According to the NAO, government subsidies of eight major franchises that totalled £811m last year will become a net profit of £326m by 2012. However, that assumes SWT, FGW and National Express East Coast will pay a combined total of less than £500m to the DfT in 2012, rising to more than £1bn three years later.

By 2014 the farepayer will be expected to provide three-quarters of funding for railways - a commitment of £9bn a year.

The NAO adds that above-inflation fare increases will remain but the improvements they will fund, including 1,300 extra carriages for the network, will take time to arrive.

Tim Burr, head of the NAO, said: "The Department for Transport has contracted to save the taxpayer money while improving service quality, but it will need to see capacity increases are well managed and timely if passengers are to expect less crowded and more reliable journeys."

Edward Leigh MP, chairman of the public accounts committee, said: "Travelling by rail is still too often an unpleasant experience. The news that fares are likely to rise above inflation in these difficult times will infuriate many passengers who have no alternative but to travel day after day on packed trains."

A Department for Transport spokesman said: "Rail has seen record levels of growth in the last decade and our priority is to address current and future passenger growth."

Theresa Villiers, the shadow transport secretary, warned that overcrowding was also a consequence of civil servants and ministers specifying franchises too tightly. "Excessive government micromanagement of our railways is delaying the delivery of vitally needed capacity enhancements, which means passengers suffer," she said.