UK rail strike: solution should suit passengers, not staff or bosses

The UK media use the phrase “travel chaos” to encompass everything from a system-wide shutdown to the Sevenoaks train running seven minutes late. A planned walkout on Wednesday would have effects closer to the former.

Rail workers are striking in protest against below-inflation pay offers. Trade unions claim private operators are squeezing wages to bolster profits. RMT union boss Mick Lynch says train operating companies (Tocs), rolling-stock leasing companies (Roscos) and subcontractors are together raking in over £500mn of annual profit. How fair are these assertions?

Some rail businesses are indeed in a comfortable position. The government now pays fees to Tocs for running train services, which de-risks their revenues. The bond-like appeal of these contracts have made transport companies like Go-Ahead, which recently accepted a £650mn bid, attractive to foreign buyers.

But their earnings do not seem excessive. Go-Ahead earns a fixed management fee of 0.5 per cent of its cost base, with an additional performance fee of up to 1.35 per cent.

Roscos, such as Angel Trains, majority-owned by Canadian pension fund PSP Investments, are also insulated from downturns in passenger numbers. A sustained fall in demand for commuter rail travel could lead to a downgrade from its Baa2 credit rating, says Moody’s. But if hybrid working remains the norm, a big fleet would still be needed midweek.

Again, Roscos do not appear unduly profitable. Their industry is far more competitive than in 2006, when Roscos were probed by the Competition Commission. In the decade from 2010, 60 per cent of new train orders were financed by recent entrants, such as infrastructure funds looking for predictable, long-life assets.

Employers say cuts to staff costs are essential to maintain their narrow margins. Across the public and private sectors, the industry has a £2bn annual funding gap. Passengers are more likely to agree that profits should be squeezed, not pay, as inflation soars.

The most compelling conclusion is equally unwelcome to incumbent management and their employees. Simplifying the UK’s fragmented rail industry could produce efficiency gains officially estimated at £1.5bn a year. There is scope to cut jobs of both the white and blue collar variety.

The Lex team is interested in hearing more from readers. Please tell us what you think of the UK rail dispute in the comments section below.