A “small number” of train companies face difficulties because of the recession, senior rail civil servant Dr Mike Mitchell has admitted.

But the director general, national networks, at the Department for Transport, insisted that revenue was holding up well and denied reports that the train operators had asked for government help.

While giving evidence to the Commons Public Accounts Committee, he was asked by chairman Edward Leigh about his forecasts of passenger numbers, as the reduction in public subsidy is dependent on a continued strong increase in journeys,
Dr Mitchell said: “That is clearly a concern, but we do monitor the financial position and, of course, the passenger numbers of all the train companies closely.

“Obviously the economic downturn is having an effect but, for the present, revenues appear to be holding up reasonably well.”

Increased season ticket renewals in January for some franchises was a good indicator and gave some comfort, he said, but stressed it was a matter they needed to keep under very close monitoring.

Mr Leigh said the DfT produces ‘traffic light’ early warning reports on the financial position of each operator, and asked how many firms were on red, given there was £3 to 4 billion of taxpayers’ money involved.

Dr Mitchell said that was “price-sensitive information” and refused to answer, even when told he was not being asked for names, insisting: “I am very concerned about the effect this is likely to have on share prices.”

After an agreement to give evidence in secret, Dr Mitchell said: “A small number of companies are showing red, and I am prepared to divulge the number in private at the end of this session.”

Asked whether the taxpayer would be exposed if a firm failed, Dr Mitchell said they would in two ways.

Firstly, most franchises had a revenue share arrangement, with the Government taking some of the risk in return for some of the reward. And secondly, if a train franchise had to be re-let it might be at an adverse price.

But he stressed the train companies have said they intend to deliver the franchise agreements, and noted that the GNER franchise was re-let at an increased premium.
Dr Mitchell was quizzed on a report in that morning’s Guardian newspaper that was headlined: “Train operators plead with government to fund 1,000 extra rail workers.”
It claimed train operators faced a “potentially devastating” blow from the economic downturn and needed government help to stave off disaster.

And it alleged the heads of the five largest train companies had met transport secretary Geoff Hoon and urged him to consider shortening trains, rewriting the financial terms of franchise agreements and to earmark state funding for an extra 1,000 staff across the network.

But Dr Mitchell told the Committee the report was inaccurate: “I attended that meeting and none of these issues were raised with the Secretary of State.”

He also read out a press release issued by the Association of Train Operating Companies that also said the report was not an “accurate reflection of the discussion which actually took place”.

It continued: “Train operators explained that they are weathering the current economic climate and, as with all other responsible businesses, are actively monitoring how events unfold.

“The specific ideas reported were not raised with the Department, but train companies underlined both their commitment to deliver quality services to passengers and their willingness to contribute actively to the economic recovery of the UK.”

The Guardian said it had seen a briefing document warning the most pessimistic forecast was that “the severity of the downturn would be completely unprecedented and would have potentially devastating effects on the finances of some train companies”.

According to the document, the operators wanted the DfT to fund 1,000 extra customer-facing staff, while in the same month the industry had announced plans to make 1,500 lay-offs.

The companies are said to be worried about the effect of deflation on regulated fares, which are pegged to the Retail Price Index, indicating a cut in revenue.

The PAC was discussing a report by the National Audit Office, the independent spending watchdog, on the letting of rail franchises between 2005-07. It said the taxpayer had got better value for money from the eight franchises let since the Department for Transport took over from the Strategic Rail Authority.

“The combined contracted subsidy of £811 million in 2006-07 should turn into a payment to the DfT of £326 million by 2011-12, although the taxpayer does bear up to 80 per cent of shortfalls from contracted target revenues after four years, and the bids assume continued high passenger growth,” the NAO concluded.