Annex 1 Subsidy to rail and profits from roads.

Subsidy to Rail

1. Table 1 provides National Rail’s annual operating subsidy back to 1954. The annual average for the period at 2004 prices is £2.5bn compared with £2.0 bn for the 10 years to 2003 and £3.7bn for the single year 2003.  The data for the years 1986-03 is from Table 2 of annex B of the DfT’s Bulletin of Public Transport Statistics 2004. Discussions with the DfT suggest that the data in that table may be regarded as operating subsidy. Since there is indeed operating subsidy it is unreasonable to expect that the loans or capital can ever be recouped from the fare box. Instead the amounts should be added to subsidy as though were current expenditure. There appear to be at least three approaches to estimating the values, namely:

1. Table 1 of Annex B of the above cited bulletin provides “investment” amounting to close to £3 billion annually at 2004 prices for the period 1994 to 2003 or, if rolling stock is excluded, £2.5 billion.  Some of that may be funded from other than Government but, if in broad terms it is regarded as all subsidy, or funded from guaranteed borrowing, then the total of capital/borrowing plus the operating subsidy for the decade has the range £4.5bn to £5.5 bn annually for the decade.
2. The Memorandum “Statutory contingent liabilities in support of Network Rail” provided by the DfT to the Government says that borrowing, guaranteed by the Government, will rise to £22 bn by 2009 with no guarantee that it will not continue to rise. Strangely, in view of the past 50 years, there is a belief that the guarantees will never be called in.  However we feel confident that nothing can be further from the truth.  Hence the £22 billion will inevitably turn out to be the taxpayer’s liability - equivalent to £2.2 bn annually for the decade. Adding operating subsidy of £2.5 bn provides £4.7 bn, which is broadly consistent with the (a) above.
3. The written statement to Parliament by the Transport Secretary, Alistair Darling, with the title “Spending on Rail”, dated February 2005 provides total Government commitments (void of loan guarantees) of £4.55 bn in 2005/06, £5.81 bn in 2006/07, £4.59 bn in 2007/08 and 4.39 bn in 2008/09. Probably the annual loan of £2.2 billion from (2) above should be added to those numbers providing £6.8 bn in 2007/08.
2. Against that background it is fair to say that subsidy to national rail may amount to between £4.5 bn and £6.5 bn annually for the decade ending 2009. £5 billion is equivalent to:
   • £200 per year for every household in the land (at a time when half of us use the train less than once a year).
   • £250,000 per year per track-mile.
   • 19 pence per passenger-mile – implying subsidy of £38 for a £100 mile return trip.

Profits from roads

3. Table 7.15 of the TSGB 2004 editions provides Fuel Tax (excluding VAT) plus Vehicle Excise Duty in 2002/03 of £26.517 bn. HM Revenue & Customs provided a figure of £8.42 bn for VAT on private motoring.  Some £0.3 bn of fuel duty is reclaimed by the bus industry. Hence the total tax revenue from motoring is close to £35 bn. Deducting expenditure of £7 billion yields £28 bn. Possibly tax on motor insurance should be added but we have no figure for that.
4. Table 7.3 of Transport Statistics Great Britain 2004 shows that 32% of vehicle-miles are on the motorway and Trunk Road Network. Hence if the tax take is proportional to vehicle-miles the Strategic Road Network earns the exchequer £9 billion annually.  The lane length for that network is between 40,000 km and 52,000 km (see facts sheet 1). Hence the contribution per lane-mile made to the exchequer has the range £275,600 to £360,000 annually. Alternatively dividing the net tax take of £28 bn by the network wide vehicle-miles (306 bn) yields a net payment to the Exchequer of 9 pence per vehicle-mile.

Comment

5. The contrast between the contribution made to the Exchequer by road traffic and the drain on the Exchequer from the rail industry is telling.

Table 1 Subsidies to National Rail