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Overview of costs in the English rail system


The rail franchise model has high fixed costs and low profit margins. The Department for Transport’s (DfT) net income from letting franchises fell significantly from 2016-17, becoming a net government subsidy in 2019-20. 

As passenger numbers dropped in the COVID-19 pandemic, rail industry income fell dramatically. It is unclear how far or when it will recover. In March 2020 the DfT announced emergency support arrangements for train operating companies, which transferred all income and cost risks to DfT, in return for operators continuing to run passenger services. 

Government is now paying operators a fixed fee for operating services, with potential performance payments.  From April 2021, the Department plans to transition rail operators to new arrangements, to replace the franchising system.

The delayed, wider Williams Rail Review is also expected to recommend new ways of organising the rail system, and wider reforms to prioritise passengers’ and taxpayers’ interests. 

Based the findings of a new report by the NAO which aims to “provide transparency over the costs of the English rail system”, the Committee will question DfT Permanent Secretary Bernadette Kelly and the CEOs of Network Rail and the Office of Rail and Road on:

- the roles and responsibilities for delivering the rail system in England, and the costs to the taxpayer;  

- the breakdown of costs and sources of income, and how government policy choices affect them;

- what to look out for as government moves towards a new model of delivery;

If you have evidence on these questions please submit it to our inquiry here by 6pm on Thursday 6 May 2021.