The onus is on Translink to make some rail savings
The annual trading results for Translink show that, with total revenue of £186m in the last three years, the group has produced a small operating loss. The detailed trading position merits closer examination.
Translink is the trading group that incorporates Northern Ireland Railways (NIR), Ulsterbus, and Metro (the urban area services based on Belfast).
The accounting presentation is heavily influenced by the different ways in which Government funding, over and above revenue from fares, is applied. The near balance in operating profits must be understood in the context of an injection last year of £121m from Government current and capital funds. An explicit evaluation of whether the taxpayer can or should afford over £100m each year is a natural question.
In 2009, in a wider evaluation of the organisation and efficiency of Translink, the Department for Regional Development (DRD) commissioned a detailed ‘outline case for public transport reform’ with expertise from FGS McClure Watters, McGrigors and the University of Leeds. The case for reform was clearly documented and suggested a major shake-up in
the organisational structure so that key parts of the decision making should be separated by shifting the decisions on specifying services to a new agency within DRD and away from Translink.
The change would generate an ability, independently, to assess costs in ways that might allow competitive tendering for some groups of bus services currently provided by Ulsterbus or Metro. For the present, that possibility is in abeyance.
The McClure Watters assessment gave evidence of operational and financial inefficiency in parts of the Translink businesses. Metro services emerge credibly with slightly higher costs per passenger than comparable operators in England but with a differential that has reduced dramatically. For Ulsterbus the evidence is that cost per passenger is significantly higher than other operators in comparable situations and shows few signs of narrowing.
The report estimates that, in Ulsterbus, there were potential annual savings of about £40m although it went on to suggest that only £10m of savings was estimated to be realisable. For Metro, the realisable savings were estimated as £1.4m
Senior management in Translink argue that the comparisons of cost per passenger, in bus services, are not valid. Although no alternative evidence is on offer, Translink reject the argument that on current services major savings are realisable.
A particular problem in assessing the effective trading performance of the public transport companies is the impact of the provision of new capital (whether buses, trains or railway permanent way) free of charge from the public purse to the transport companies. This means that, if capital investment were charged with interest and/or depreciation, the trading results would show a serious deficit. That would not necessarily mean that the subsidy should be withdrawn but the present system deceives conventional analysis.
The trading accounts for the transport services are only an assessment of the extent to which they meet marginal operating costs, rather than full market conditions.
This type of accounting along with a revenue subsidy for railways in a public service obligation (PSO) is only a partial measurement (possibly about half) of the cost to the taxpayer. Translink claims that the railway PSO is reducing per passenger journey. If the capital injection was included, the subsidy per journey would be much higher.
Policy changes in the governance of Translink would help. First, DRD should set an explicit and published financial performance indicator. The present performance yardsticks omit a financial performance target. Second, DRD might make the subsidies more explicit by giving the buses a current PSO, as for the trains, rather than capital grants. Third, ahead of any big capital projects, DRD should require Translink to publish the cost-benefit evaluation.