Rail passengers squeezed by cost cutting

Not even more job cuts and a rise in ticket sales will bring privatised companies a profit

Yet another piece of the nation's train set will trundle into private hands today when Richard Branson's Virgin Group takes over the InterCity West Coast service linking London and Glasgow.

Mr Branson has a vision for the worn out 700 miles of track which carries passengers along the nation's industrial spine. Virgin plans to spend pounds 750m on a fleet of 36 tilting trains and reduce the journey time by 90 minutes, to just three-and-a-half hours in six years' time.

Despite record growth in passengers this year, the ride for travellers on the privatised network has become noticeably bumpier. Private owners of train firms have been forced to shelve services because of staff shortages. Others have been fined for cramming passengers into shorter trains and are saving cash by substituting buses for trains on some routes.

Under British Rail things were not much better. Government subsidies shrank and fares rose while stations closed and carriages rusted away. But with privatisation, travellers were supposed to be in for a "rail renaissance" with train companies becoming "customer-focused."

The problem for passengers is that much has been promised and very little delivered. The performance of one of the first privatised lines - South West Trains - has been disastrous.

SWT, the biggest commuter train company in Britain, was taken over by Stagecoach, the bus giant, in February last year. At first the firm comfortably beat its punctuality and reliability targets for trains ferrying passengers between London, Hampshire and Surrey. But in January 70 drivers - more than 10 per cent of the total - took advantage of the firm's severance package - and left.

That led to a shortage of trained staff and eventually cancellations as the company struggled to instruct new drivers. By the end of January, travellers saw an average of 17 services scrapped a day, leaving thousands stranded at stations. Passengers' woes deepened when the company was forced to implement an emergency timetable last month which wiped 39 trains from SWT daily schedules.

Then work on a crucial section of track near Woking in Surrey took more than nine days instead of a weekend to complete, causing chaos.

The lesson would seem to be not to cut staff, but that is precisely what firms have to do in order to make money. Under the Government's franchising system, firms bid to run train operating companies. The licence was awarded to the firm that asked for the lowest Government grant or offered the biggest payments over the length of the franchise while meeting minimum standards.

In order to fill the gap between diminishing subsidies and the cost of running a train company, private operators have to increase ticket sales and cut staff numbers. Leaked documents from three franchises in the north of England show that the new owners are preparing to shed 25 per cent of the work force - more than 2,300 staff. Using industry figures for the cost of using the track, renting trains and paying wage bills, it is possible to calculate the job losses needed to make a profit on the new private network. If 10,000 jobs were cut nationally and ticket sales grew by up to 50 per cent over the next seven years, seven train companies would still not be making any money by the time their licences expire.

Prism, a group of bus industry executives who run four train companies - Cardiff Valleys, London Tilbury Southend, West Anglia Great Northern and South Wales and West - will collect more than pounds 800m from the taxpayer over the next seven years. But the company will lose pounds 70m unless it doubles its takings and cuts 900 staff.

Surprisingly, Stagecoach hardly needs to cut staff at all. British Rail used to run South West Trains for a little over pounds 60m a year. Stagecoach will need on average pounds 52m. If staff numbers were to stay the same the company would make pounds 45m over the next six years.

The cost of running British Rail before it was privatised was about pounds 800m a year. The total annual bill for the new privatised system was pounds 1.8bn, which will dwindle to BR levels in seven years' time.

And where did the extra money come from? British Rail, whose sale netted the Treasury pounds 4.5bn. The vast profits and job losses as well as the new carriages - 450 promised next year - will have been paid for by the much-maligned, state-owned BR.