Government signs off £65m payout for owners of failing Avanti and TransPennine rail franchises

Critics say cash should have been invested to avoid collapse of rail services

Avanti West Coast has massively cut back its timetable (Getty)

The government authorised the owner of failing rail franchises Avanti West Coast and TransPennine Express to pay itself a £65m dividend last year, accounts show.

The revelation comes amid calls for FirstGroup to be stripped of running the two railways because of its catastrophic performance.

Both the TransPennine Express (TPE) and Avanti services have effectively collapsed in recent months, with record cancellations and stripped-back emergency timetables, largely due to a shortage of staff.

TPE, which is supposed to serve cities across the north of England and Scotland, cancelled 23.7 per cent of its trains across the start of the year, the four weeks to 4 February.

Avanti, which is meant to operate intercity services up and down the west coast, last year had to dramatically cut the number of trains it runs because it failed to have enough staff available to operate a full timetable.

Despite this, it still managed to cancel 18.9 per cent of those services left on the timetable in the run up to Christmas, the four weeks to January 7.

Yet the operator's 2022 accounts show First Rail Holdings Ltd, which runs the two franchises, remitted a total of £65m in dividends payments to its parent company FirstGroup plc.

Critics say the cash should have been used for investment to avoid the problems occurring at the two franchises, and unions described the payments as “looting”.

First Rail Holdings’ remittance payment to its parent company was paid in two installments: a £20m payment before March 2022 and £45m after the financial year end, the accounts, made available by Companies House earlier this month, show.

Passengers were hit with a 5.9 per cent increase in rail fares last month – the highest jump in 10 years. Yet The Independent on Monday revealed that Network Rail does not have sufficient cash to maintain Britain’s ailing rail infrastructure.

A leaked presentation drawn up by the public infrastructure manager says there will be more “service affecting failures” as a result of the expected financial settlement with the government.

Performance across Avanti and TPE has been so bad that there have been repeated calls for both franchises to be placed under new management.

On Monday the mayors of West Yorkshire, South Yorkshire, Manchester, Liverpool and North of Tyne wrote a joint letter to the government urging ministers put TransPennine Express under new ownership.

“Rail passengers have had enough. The Northern economy has had enough, the failure of TPE is holding us back. We need change now,” they said, adding: “We are of the unanimous view that TransPennine Express needs to start afresh under new ownership.”

In December the mayors of Manchester, London and Birmingham said Avanti should be stripped of its franchise if services were not restored, adding: “They cannot be allowed to continue this chaos into 2023. This is the end of the line.”

But despite the failures, the government has extended Avanti’s contract for a further six months, citing recent improvements and the restoration of some services. The Department for Transport (DfT) says cancellations on the west coast operator are now at their lowest in 12 months and that more than 100 additional drivers have been recruited.

This month the DfT will also decide whether to extend TPE’s contract, with an option of taking it all the way to 2025. It is currently due to expire next month.

Former Labour shadow chancellor John McDonnell said: “This confirms yet again what an absolute racket our railways are. The solution is renationalisation.”

Mick Lynch, general secretary of the RMT rail union, criticised the decision to allow the payments and said the Department for Transport was “now little more than a representative of big business, geared to turning tax revenue into shareholder dividends”.

“If you’re a private train operator, it doesn’t matter whether your problem is unpredictable passenger revenue, costly train leases or industrial action, the secretary of state is there to help, opening the public purse and emptying it into shareholders’ pockets," he said.

“This system is not operating in the interests of passengers, railway workers or the taxpayer. It is clear that only full public ownership of train operation in this country can save our railways from being looted by this gang of unaccountable spivs.”

FirstGroup has previously blamed the problems on fewer workers volunteering for overtime than planned, as well as high sickness rates. The company also runs the GWR and SWR franchises.

A spokesperson for FirstGroup said: “These are not shareholder dividends but how the net fees earned are remitted from the train operators to the owning group. Since 2020, train operators have been paid a nominal fixed annual management fee as well as a performance-based fee against specific targets set by the government to run rail services.

“The information in our accounts refers to financial data for the 12 months to March 2022, more than a year ago, during which time we saw passenger numbers begin to recover after the impact of the pandemic and prior to RMT’s industrial action across the network.

“Performance at Avanti is steadily improving and, since the introduction of the new timetable in mid-December, the number of services has increased by more than 40 per cent compared to last summer, while TPE’s cancellations have been reduced by 40 per cent since a recovery plan was introduced in early February.”

The Department for Transport says certain conditions have to be met before it approves the payments, and notes that the ones listed in the account predate the worst disruption at Avanti and TPE.