8 The eight franchise agreements reduce the burden on taxpayers, replacing a direct subsidy of £811 million in 2006-07 with a projected £326 million payment to the Department in 2011-12 (Figure 2). Six franchises out of the eight received subsidies in 2006-07 averaging £130 million. The number subsidised falls to three franchises with an average subsidy of £128 million in 2011-12. The other five franchises potentially pay over £142 million of revenue premium, on average, with the highest premium being £229 million for the Inter City East Coast franchise. These savings help to fund the Department's proposed investment in passenger services.
2 | The potential impact of the revenues set out in franchise contracts | |||||||||||
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Franchise | Direct subsidy or (premium) in 2006-07 actual £ million | Direct subsidy or (premium), per franchise contracts, in 2011-12 £ million | ||||||||||
South Western | 123 | (140) | ||||||||||
South Eastern | 145 | 65 | ||||||||||
Thameslink/Great Northern | (14) | (126) | ||||||||||
Greater Western | 97 | (168) | ||||||||||
East Midlands | 30 | (46) | ||||||||||
West Midlands | 212 | 162 | ||||||||||
New cross country | 231 | 156 | ||||||||||
Inter city East coast | (13) | (229) | ||||||||||
Total | 811 | (326) | ||||||||||
Source: National Audit Office summary of Department data | ||||||||||||
NOTE See note 1 to Figure 10 to clarify 2006-2007data. The saving in subsidy shown does not take into account the Department's investment plans published in July 2007. | ||||||||||||
9 Indirect grant support, to cover Network Rail's maintenance and renewal of infrastructure in these franchise areas, means that there will still be an overall taxpayer subsidy. The future amount of network grant to be set by the Office of Rail Regulation for the period 2009-2014 is not yet known. Assuming continuation of the current level of grant, this overall subsidy would be £926 million for these eight franchises in 2011-2012 (a reduction of 55 per cent).
10 The reduction in subsidy is dependent on a continued strong increase in the number of passenger journeys. If past trends continue, two thirds of the increase in revenue for all franchises in the period to 2013-14 will come from this source. The balance includes revenue from a variety of other sources such as reduced fare evasion, changes in the mix of fares paid by rail passengers and higher fares in real terms to the extent permitted by the Department's regulation of fares.
11 After the first four years of the franchises, the taxpayer shares demand risk with the train operators. Until then each train operating company bears nearly all financial risks associated with revenue and thereafter still bears the financial consequences if revenue falls two per cent below its projection. Beyond this point, the Department shares the financial consequences with the train operator, by varying the amount of subsidy paid or premium received by the Department. From the outset the taxpayer is also entitled to share in any extra revenue (see Figure 9 on page 17). Reducing the train operators' risk in this way has resulted in better bids, based on higher revenues, with a firm financial commitment for four years.