8 January 2025
Private train operators award themselves bumper payouts as nationalisation looms
On 4th December, Transport Secretary Heidi Alexander told the House of Commons that following Royal Assent to the Passenger Rail Services (Public Ownership) Act, she was ‘today launching the programme to transition passenger rail services currently operated by privately-owned operators into public ownership’. This was, she said ‘a crucial first step towards fundamental rail reform.’1
In the same statement, she confirmed that the first three franchises to come into public ownership would be c2c, South-Western and then Greater Anglia in autumn 2025: ‘The Government will issue an expiry notice to Greater Anglia in due course to confirm the exact transfer date.’2
Thereafter it was expected that a franchise would come into public ownership every three months according to the expiry of their contracts or core terms.
As the Transport Secretary noted this would create immediate savings from the management fees paid to private train operators: "At the moment, we pay roughly about £150 million pounds in management fees to the train operating companies."3
These companies can turn these fees into dividends, subject to the agreement of the Secretary of State, which under these contracts, cannot be unreasonably withheld.
In this briefing we show what the private companies operating passenger services have done with their fees, with the agreement of the Secretary of State under the last administration, in the year up to March 2024.
1 This Act does not cover the devolved Concessions, the Elizabeth Line, London Overground and Merseyrail, where the power to bring them into public ownership already lies with the devolved transport authorities that procure them, TfL and Merseytravel and their devolved Mayoral Authorities, the GLA and the Liverpool City Region.
2 https://questions-statements.parliament.uk/written-statements/detail/2024-12-04/hcws281
3 https://www.independent.co.uk/business/three-rail-firms-to-be-brought-into-public-ownership-butfares-will-still-rise-b2658561.html
Vocal critic of nationalisation oversees record £90 million payout from 4 franchises
One particularly vocal critic of Labour’s plans to nationalise passenger operations has been the CEO of Transport UK, Dominic Booth. Transport UK runs the Greater Anglia franchise, which faces public ownership in the Autumn this year.
Dring the passage of the Act, Transport UK lobbied for amendments that would have wrecked Labour’s carefully worked out timetable for public ownership. On 22nd November Mr Booth wrote to the ORR raising concerns that the speed of Labour’s reforms posed a threat to passenger safety. Mr Booth also took to LabourListto urge the government to slow down and work with private operators, again arguing for an approach that, whatever his protestations, would fundamentally undermine Labour’s democratically mandated policy programme.4
This energetic lobbying is perhaps understandable as Mr Booth has a lot to lose. Transport UK’s four franchises made bumper dividend payments last year, totalling a record £90 million.
Transport UK was formed in March 2023, following a management buyout of Abellio occasioned by the decision by the Dutch state operator NederlandseSpoorwegento divest itself of foreign transport subsidiaries. Transport UK controls four UK franchises: Greater Anglia, East Midlands, West Midlands and Merseyrail.5
Transport UK and its four English rail franchises are now owned directly by Dominic Booth and two companies, Grosvenor Walker Investments and Norton Green Investments, one of which is owned by… Dominic Booth.
4 TRANSPORT UK BRIEFING,PASSENGER RAILWAY SERVICES (PUBLIC OWNERSHIP) BILL HOUSE OF LORDS SECOND READING DEBATE – MONDAY OCTOBER 7, 2024; https://uk.finance.yahoo.com/news/labour-hits-back-concerns-rail-165432462.html; https://labourlist.org/2024/11/rail-nationalisation-labour-government-speed-trap-transport-uk/ 5 In the analysis that follows, the three devolved Concessions are included in the profits of the private sector as they form part of their investment portfolios on the same basis as the DfT franchises.
Transport UK - total dividend payouts (£m) for Greater Anglia, East Midlands, West Midlands, Merseyrail, 2016-24
Table 1: Abellio/Transport
Dividend payouts up across the board
However, while the scale of Transport UK’s value extraction is eye-catching to say the least, it would be wrong to run away with the idea that this is a problem particular to Transport UK.
The fact is that private sector dividend payments are up across the board.
Dividends paid by private TOCs 2016-24
Between them, the private sector train operators paid out £246 million in the year to March 2024, the largest figure since 2018-19. Over the period from 2016, they paid out dividends worth £1.8 billion (Table 2).
Particularly egregious for hard-pressed passengers and rail workers will be the dividend payments made by failing franchises Cross Country (£7.3 million) and Avanti (£8.1 million).
However, the year also saw some alarmingly large payouts from other franchises such as Thameslink, Southern and Great Northern’s £62 million, Greater Anglia’s £43 million and Merseyrail’s £42 million.
This largesse toward their shareholders is more impressive as there are fewer private sector TOCs than there were in 2016. In real terms, dividend payments per franchise are effectively back to where they were before the pandemic.
Table 2: Dividend payments per franchise 2016-246
6 Data are collected from ORR financial data, Table 7226 (https://dataportal.orr.gov.uk/statistics/finance/railindustry-finance/table-7226-franchised-passenger-train-operator-finances-since-2015-16-by-franchise/). However, this data has been updated for the year to March 2024 with information from statutory accounts that is missing from the ORR’s collection. Accounts for Transport UK’s and Arriva’s franchises were only published in December 2024. Govia Thameslink's dividend payments for 2022-23 and 2023-24 were also missed from the ORR data.
Owning Groups emptying the coffers before nationalisation?
The same dividend payments can be viewed from the perspective of the owning groups who collect them from their franchises.
As Table 3 shows, every owning group operating on the UK railways received more in dividend payments from their rail franchises in 2023-4 than the previous year, though none managed the level of excess of Transport UK.
Table 3: Owning Group dividends 2016-24
The owning groups left on the railway have done nicely out of privatisation. Just these 7 companies have made £1.3 billion in dividend payments since 2016/17.
The front runner is FirstGroup, with Go-Ahead Group and Transport UK second and third respectively. Since 2015/16, FirstGroup franchises have made more than £400 million in dividend payments to their parent company.
Table 4: Total dividend by owning group 2016-24
Total dividends 2016-24 by owning group
Labour’s reforms can’t come fast enough
The truth is that far from Labour’s plans being in anyway rushed, they can’t come soon enough.
RMT has consistently argued that the private train operating companies have always been parasitic.
As Lord Hendy observed, during the Lords Committee Stage debates on the Passenger Rail Services (Public ownership) Act,
‘examplesofprivateinvestmentinourrailwayinfrastructurehavebeenfairlythin onthegroundintheprivatisationera…. even100%privatesectorownershipof trainoperatingcompaniesunderfranchisinghasnotresultedinlargeinvestments beingfundedbythosecompanies’.7
The TOCs were always shielded from bearing the costs of the railways as this was the only way the appearance of a profitable industry could be generated. As far back as 2012, the ORR noted that
7 https://hansard.parliament.uk/lords/2024-10-21/debates/BC4AFD1E-7157-4348-8A9067B8BD53860C/PassengerRailwayServices(PublicOwnership)Bill
Arriva Transport UK FirstGroup Go Ahead Trenitalia MTR Keolis
‘ theindustryasawholeremainsheavilysubsidised….ifNetworkRailweretocease toreceive[networkgrant]andinsteadrelyonrevenuegeneratedbytrackaccess chargesthenallTOCswouldrequireapositive,significantsubsidy’.8
The train operating companies always like to stress how small their profit margins are. Before the pandemic and the changes in contracts, they liked to estimate their returns at 3%. Now, under the variety of emergency contracts and National Rail contracts they’ve signed with the government, the TOCs stress their ‘2%’ return. This is measured as ‘Return on Sales (ROS), profits as a proportion of revenue.
But matters look very different if we look at the rate of profit measured against the capital they put up. Investors use the measure of Return on Capital Employed (ROCE) to measure the return against the ‘risk’ taken by businesses in investing capital. ROCE is measured by dividing the profits before tax by long-term capital invested, or ‘capital employed’. Capital employed is calculated by subtracting current liabilities (money the company owes within one year) from the company’s total assets.
As one academic study has argued, ‘like many other outsourcing businesses, train operating requires very little capital investment, so that a modest return on sales turns into a starry ROCE’.9 RMT has calculated that the average ROCE of a train operating company for the period between 2013 and 2022, was 126%.
Now, with their chronic mishandling of the railway resulting in cancellations and poor performance, and with the prospect of public ownership without compensation looming, it appears that the TOCs are ratcheting up this already-parasitic value extraction, ramping up their dividend payments to sweat the railways for every possible penny before their contracts expire.
Nationalisation can’t come soon enough.
8 ORR, CostsandRevenuesofFranchisedPassengerTrainOperators,, pp. 21-22.
9 Andrew Bowman, Ismail Erturk, Peter Folkman, Julie Froud, Colin Haslam, Sukhdev Johal, Adam Leaver, Michael Moran, Nick Tsitsianis, Karel Williams, WhataWaste:Outsourcingandhowitgoeswrong (Manchester University Press 2015), pp. 43-47.
Appendices: Owning Group dividend tables
Arriva dividends 2016-2410
Transport UK dividends 2016-2411
10 The calculation of Arriva’s dividends on London Overground begins when they took over the franchise in 2017 and that for Northern ends when it was nationalised in 2020.
11 Years when EMR was operated by Stagecoach (up to 2019) are excluded from these calculations. Only 50% of Merseyrail's dividend is included in this data as Merseyrail is a joint venture with Serco. West Midlands is a consortium led by Abellio/Transport UK which took over the franchise in 2017. it is 85% owned by TUK so this has been used to calculate dividend values.
FirstGroup dividends 2016-2412
Go-Ahead Group dividends 2016-2413
Franchise
12 Prior to 2017-18, SWR was operated by Stagecoach so these years are omitted, Similarly, the West Coast was operated by Virgin until 2020. The value of FirstGroup’s dividend from SWR and AWC has been calculated on their percentage share of the consortium, which is 70% in each case. So it is assumed they received 70% of the franchise declared dividend.
13 Go-Ahead's share of the TSGN joint venture dividend is calculated at 65% of the franchise’s declared dividend. The rest is assumed to go to Keolis.
Trenitalia dividends, 2016-2414
Keolis dividends, 2016-2415
Franchise
MTR dividends, 2016-2416
14 c2c was sold to Trenitalia in 2017 and the Trenitalia also holds a 30% share of the Avanti West Coast franchise. Its dividend is calculated as 30% of the AWC declared dividend.
15 Keolis’s dividend is calculated on the basis of its 35% share of Thameslink, Southern and Great Northern.
16 MTR’s dividend is calculated on the basis of its 30% share of the SWR joint venture with FirstGroup, added to its dividends from the Elizabeth Line.
Chiltern
Operated by Arriva since 2011
Cross Country Operated by Arriva since 2007
East Anglia
East Coast Mainline
East Midlands
Elizabeth line
Essex Thameside (c2c)
Great Western
London Overground
Merseyrail
Operated by Abellio/Transport UK since 2012
Operated by VTEC until 2028 when nationalised
Operated by Stagecoach until 2019 when transferred to Abellio/Transport UK
Operated by MTR until 2024
c2c held this from 2014 but were sold by National Express to Trenitalia in 2017
Operated by FirstGroup since 2005
Operated by LOROL until 2016-7 when it transferred to Arriva
Operated by Abellio/Transport UK and Serco JV from 2003 on a 50:50 basis
Northern Operated by Arriva until 2021 when it was nationalised
South Eastern
South Western
Thameslink, Southern and Great Northern (GTR)
Transpennine Express
West Coast
West Midlands
Operated by Govia until October 2022 when it was nationalised
Operated by Stagecoah until 2017-18 when it was taken over by First-MTR
Operated by Govia since 2015
Operated by FirstGroup since 2016
Operated by FirstGroup and Trenitalia since December 2019
Operated by Transport UK since 2017