Britain extends COVID funding for railways ahead of contract shake-up

LONDON (Reuters) - Britain extended state support to keep its rail network moving during the pandemic, providing private train companies with less lucrative temporary contracts ahead of a shake-up of the way the system operates.

The government avoided a full nationalisation but said it would eventually introduce a new model to replace a discredited franchise system that had led to the collapse of some services, high prices and - prior to COVID - overcrowded trains.

Britain privatised its railways in the 1990s with a franchising model that paid out to companies including UK-listed FirstGroup FGP.L and Go-Ahead GOG.L as well as Arriva, owned by German state-owned Deutsche Bahn [DBN.UL] and Abellio, owned by the Dutch national rail operator.

“The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working,” Transport minister Grant Shapps said in a statement.

Under temporary new deals announced on Monday, train operators will be paid management fees of a maximum of 1.5% of the cost base of the contract pre-pandemic, lower than the around 2% fee included in earlier emergency contracts, for short-term contracts of around a year.

Passenger numbers dropped by as much as 90% at the height of the pandemic as public transport was reserved for key workers. While numbers have risen in recent weeks, there are fears they could fall again as the virus accelerates.

The taxpayer will need to prop up the railways until passenger numbers return, the government said on Monday. It has spent about 3.5 billion pounds ($4.53 billion) subsidising its railway in the last six months according to estimates.

Working from home has become the norm for many Britons during the pandemic, and rail expert Michael Holden warned that commuter numbers would never return to their pre-pandemic highs.

“I don’t think we will ever, certainly not for the next few years, return to the levels of demand for commuting travel that we saw in the period leading up to February,” he told BBC radio.

Once the course of the pandemic becomes clearer, the government said it would publish details of the new system of railway contracts.

Reporting by Sarah Young; editing by Kate Holton and Angus MacSwan