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UTG warns of unfair cost allocation to regional services

The Urban Transport Group has called on the Office of Rail and Road for a fairer allocation of costs to regional rail services.

In a letter to ORR’s chief executive, Ben Still, lead board member on rail issues for the Urban Transport Group, warned that industry processes could further shift the balance of the railways’ infrastructure costs on to regional rail services, which it says could damage their future prospects.

The decision to allocate more of the network’s overall costs to regional rail services has come following a series of industry consultations by ORR and Network Rail.

Network Rail’s recent consultation on fixed cost allocation could see Northern Rail’s fixed costs increase by 50%, whilst Merseyrail, which the Urban Transport Group says is “largely self-contained” could see its allocation increase by 66%.

Virgin West Coast and Virgin East Coast would both see their allocations reduce by 58%.

Still’s letter asks the regulator “to adopt a construct for rail costs which is to the benefit of the operators whose trains have some of the largest impacts on the cost of infrastructure provision in a way which creates artificial profits, whilst at the same time loading costs on to operators whose trains cause the least impact and which damages their future prospects, is not something that we believe is as either justifiable or sensible.”

The group’s 2014 report, ‘A heavy load to bear - towards a fairer allocation of industry costs to regional rail services,’ found that allocation of maintenance and renewal costs largely treats every passenger train in the same way, despite estimations that inter-city trains produce twenty times the amount of track damage as the most basic light weight regional trains.

It claimed that a system which allocated costs more fairly would result in regional rail receiving 28% of total government support for the railways - down from 58%.

Still warned that a series of highly technical consultation papers could risk a higher burden of the industry’s costs being placed onto services that don’t create the majority of that burden and are “least able to bear it.”

He said: “Regional rail services bring clear benefits through switching traffic from road to rail in our busy cities, historic towns and national parks.

“We need a fairer system of allocating costs to them than the one we have now, the flaws of which could be exacerbated as a result of these emerging plans,” he added.

“Lightweight regional train services do not cause the most damage to the tracks, nor require the most sophisticated signalling systems, nor do regional rail services generate the most income or receive the most investment.

“They are marginal users and this needs to be fairly reflected in the costs that are allocated to them.”

An ORR spokesperson told RTM: “We have set out proposals for consultation and will be reviewing the responses carefully.

“Our proposals included our analysis of the likely impact that any changes to charges would have on different market segments.

“We will be reviewing responses and working with stakeholders to understand the evidence they have provided on these impacts.”

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Lutz   18/12/2017 at 18:41

There seems a little confusion in the telling of the story or the description of the problem.

Jerry Alderson   19/12/2017 at 18:11

Cost allocation is an accountant's choice - there is no 'right' answer. The choices are between a) 'allocated' (full)', b) 'direct' and c) 'avoidable' costs. Do you a) include a percentage of Mark Carne's salary, or b) count every penny that is spent on a particular route, or c) [a hybrid version that considers avoidable costs] do you deduct from the money you spend the costs you would have to spend if you still owned the route but earned no revenue from it. The reality is that it doesn't matter. What does matter is the decisions you take having chosen one of these three methods.

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