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Debts and subsidies for High Speed Rail: Andrew Bodman, July 2012

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The ongoing costs of running a high speed rail system are sometimes overlooked or underestimated. In July 2010 a World Bank report cautioned that governments planning high-speed rail systems: “. . should also contemplate the near-certainty of copious and continuing budget support for the debt”.

Japan was the pioneer of high speed rail in the 1960s but within two decades had accumulated massive debts. The system was privatised by creating seven Japan Railway operators, and the $280 billion debt was transferred to the taxpayer and is still being paid off. Apparently four of the seven operators are still government owned, and it is thought that the privately owned operators receive concessionary usage fees. In addition, the three private operators receive another $2 billion annually from the government. And all of these subsidises are needed despite Japan having the highest rate of rail use in the developed world.

The French accounting system treats taxpayer subsidies as “commercial revenues”. So the French programme’s $1.75 billion “profit” occurs through a $10 billion annual subsidy according to a study by Amtrak in 2008. The national rail infrastructure assets were transferred to Réseau Ferré de France (RFF) in 1997. Between RFF and SNCF there was an accumulated debt of €38 billion from building lines for the TGV by 2011. To deal with this debt, RFF is expected to increase track fees by 40% between 2008 and 2012 to reduce this debt. SNCF has threatened to cancel low ridership routes and has indicated that its reduced profitability will make it impossible to renew its 1981 fleet of TGVs before 2020. TGV fares are being increased by more than twice the rate of inflation and in some cases even more.

It is believed that Spain spends nearly $3 billion on high speed rail subsidies annually and Germany more than $1 billion per year. We also know that the high speed line between Amsterdam, Rotterdam and Breda (in the Netherlands) has been saved from bankruptcy with a £250m government bailout. It has been losing £320,000 per day due to disastrous levels of patronage.

Further afield in Taiwan, it became necessary for the Taiwanese government to take over the running of the Taiwan High Speed Rail Corporation in 2009 as it was almost bankrupt, two years after it first started running its high speed trains. It had lost more than $2.1 billion. One of the contributing factors to the financial problems was that passenger numbers were approximately one third of those that had been forecast.

China which now has a greater distance of high speed line than any other country also has the largest debts from its rail building. In the first half of 2011, these debts amounted to $317 billion which has raised concerns for the World Bank. It is anticipated that almost $80 billion will be spent on building more high speed rail this year, with some funding coming from private sources as banks are restricted in their lending. One of the problems in this country is very low occupancy rates of high speed trains. The Chinese Railways Ministry is required to pay interest of up to 120 billion yuan (US$ 18.26 billion) each year. Apparently the railway system is currently only able to pay interest on the debt, and is unable to repay any of debt itself.

Is it surprising that the states of Florida, Ohio and Winsconsin turned down government incentives to build high speed lines? Not really because the individual states would have had to pick up any ongoing losses associated with such a programme.

Sir Roy McNulty’s report in 2011 highlighted the £5 billion annual subsidy paid in this country to subsidise our railways and recommended it be reduced. Our Secretary of State Justine Greening accepted the subsidy should be reduced when she attended the Transport Select Committee last December. However, HS1 is currently being subsidised by Kent County Council. It may be a small amount and of a temporary nature, but it does cover just 5 trains per day and it is still a subsidy. It would appear from the experiences of several other countries that HS2, if it is built, will add to the subsidy required for railways in the UK. Is this sensible for a country as indebted as the UK?

Andrew Bodman


July 2012

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