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The Office of Rail and Road has revealed that railway earnings were up last year, further reducing the level of subsidies paid by government. However, there is still some way to go before the level of government support falls back to the levels achieved before Covid.

The news has come as Chanceller Rachel Reeves is about to confirm in her Budget statement today that regulated fares charged by nationalised English operators or those with DfT contracts will be frozen for the coming year.

The ORR said fares income increased by 8.3 per cent in the year from April 2024 to March 2025 to £11.5 billion, reflecting a continued recovery in journeys since the pandemic.

Government funding (including contributions from the devolved administrations in Cardiff and Glasgow) of the operational rail industry was down by 7 per cent, to £11.9 billion, but that was still nearly half of the industry’s costs of £26 billion.

This amount includes £2.5 billion in interest paid on loans by Network Rail, although this was down by 5.5 per cent because the payments are linked to inflation, which was lower than in the previous year. The governments’ total contribution of £21.6 billion also includes capital costs, such as Network Rail renewals and the continuing expenditure on HS2, which was £7.1 billion.

The ORR’s director of economics, finance and markets Will Godfrey said: ‘Taking stock of the national rail finances in our annual report, we welcome the continued recovery in fares income in the last year. But cost pressures and a lagged recovery in industry income compared to passenger journeys, explains why the reduction in government funding still leaves the overall subsidy substantially above pre-pandemic levels.’

Readers’ comments

The traditional role of subsidies has been one of picking up losses, which must I think incentivise inefficiency. However GBR pans out, my feeling is that TOCs, in both public and private sectors, should be managed by their own leaders, within a  superstructure of incentivising subsidies and charges that cause TOCs to take into account the broader concerns of society. It would be in the design of such a superstructure that DfT can find its best role, leaving TOCs to make their own decisions within this.

David C. Smith, Bletchley

[Separate public sector TOCs may not exist when GBR is in charge, but in any case ministers seem destined to set broad policy rather than run the railway. Whatever the structure, passenger railways are rarely profitable, and so some form of financial support seems inevitable.--Ed.]

The term subsidy can be a very emotive term especially given the amount of funding the railway receives. However as your article makes clear government funding covers several discrete areas. Perhaps greater clarity is required between investment, into both the classic network and HS2, and revenue support to operate train services. However the impression that subsidy implies supporting inefficiency requires rigorous challenge. During Sir Peter Parker's tenure as BR chairman he successfully argued that revenue support was a contract with government to continue operating the social network. A key element of that contract was that operating costs were constantly challenged with budgets subject to tight control.

Chris Jones-Bridger, Buckley, Flintshire

There is, I think the same basic recognition of needing subsidy to encourage operators to run services so as to defray hidden, wider costs and maximise ‘hidden’ benefits on a wider base than otherwise. We three are just using different means of expressing this. As for myself, I have tried to emphasise the way subsidies could be thought out and offered on a performance related basis, so they might motivate innovatory operation stemming from railmen and railwomen rather than government ministers who often are just ‘passing through’.

David C. Smith, Bletchley

[I’m sorry, but I think this misses the point. Under GBR there may not be any individual operators (excluding open access) to be ‘encouraged’ or otherwise. The privatisation era and its associated disaggregation is becoming history.-- Ed.]