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Rail minister Huw Merriman will meet union leaders including Mick Lynch of the RMT on Monday after three weeks of unseasonal disruption left the two sides apparently as far apart as ever.

While both say they are ready to talk, unions remain committed to further strikes if required and the government is legislating to limit industrial action, an inauspicious background to the first direct talks between ministers and bosses since November.

Ultimately, progress will depend on concessions on both sides, but at its heart are financial considerations that have changed radically in the three years since COVID-19.

These changes, driven by necessity and government strategy, have fundamentally altered the incentives for the constituent parts of the fiendishly complex rail network to do a deal.

Understanding those changes may help explain why a dispute that began in high summer seems no closer to resolution in the depths of the following winter.

The pandemic has dramatically and perhaps permanently changed the financial model. In 2019-20, the last full year before COVID struck, there were 1.74 billion passenger journeys generating £10.4bn in fares. Government subsidy amounted to £6.5bn.

The following year COVID lockdowns and working from home saw the position flip, with a meagre 388 million passenger journeys producing just £1.8bn in fares, and government support to keep the wheels turning rising to £16.5bn.

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Even in the year to March 2022, with the pandemic in abeyance and recovery under way, there were fewer than a billion journeys, fares revenue was still below £6bn, and the government was putting in £13.3bn, more than double the pre-COVID cost to taxpayers.

So when Network Rail says the railways no longer have the revenue to meet inflation-matching wage demands they are at least half right.

Passenger fares revenue has plummeted.

Yet the most recent pay offers, of 5% plus 4% over two years from Network Rail, and 4% plus 4% from the train operators, are below the 5.9% fare rise that will apply from March.

But there is another equally important change underlying this dispute; where that revenue goes.

Revenue risk from train operators removed

In response to the pandemic the government tore up franchise agreements with privately owned train operators and replaced them with service contracts, removing at a stroke the revenue risk from train operators.

Instead of fares going to train operators who paid guaranteed revenue to the government, fares now go directly to the Department for Transport, which pays the operator to run services.

Crucially though, the train operators still get paid when workers are on strike, receiving compensation for lost revenue of £20m-£25m a day. The RMT claims that adds up to £340m paid by the government to private companies since the dispute began.

The Department of Transport would not provide a figure for total compensation paid but did say: “We do not tend to penalise the train operators for failing to run a full service on a strike day given it’s not the train operators who have opted to strike.”

Read more:
Find out which areas area affected by the fresh strikes
Union urges Rishi Sunak to ‘step up to the plate’

A changed calculation for Network Rail

While the new contracts have reduced the incentive for train companies to do a deal by removing their risk, the restructuring has also changed the calculation for Network Rail, involved in its own dispute with the RMT.

Under the old franchise system, if trains could not run because Network Rail signalling and station staff were on strike, it compensated the operators for lost fares.

That meant that for train operators, Network Rail and the unions there was a basic calculation when considering a pay deal.

If the pay demand from workers was cheaper in the long run than the lost revenue or compensation cost of strike action, a deal could, and usually would, be done.

That basic calculation has helped rail workers remain one of the few public sector groups whose pay has kept track with inflation since 2010. With revenues collapsing since COVID that balance of incentives has changed.

Cost of industrial action

Taxpayers are now the ones bearing the overwhelming cost of industrial action, not the employers, meaning it is ministers and the Treasury whose appetite for financial pain is being tested.

On the union’s side it is still workers who pay for strike action in lost pay and their resolve will be weighing on the minds of bosses and ministers this weekend.

Rail workers are paid on four-week shift cycles and each of the six waves of strike action so far has taken place in a separate cycle limiting the loss of wages from a single wage slip.

The cost is adding up for RMT members even with support from strike funds that ease the blow. They have lost up to 19 days pay since the first strikes in June, and at least four days pay in each of December and January, a significant hit for anyone.

As Mick Lynch considers his next move he will be weighing up how much more his members can bear. They have shown remarkable solidarity since the dispute began but in a cost of living squeeze it may not be infinite.

Barriers to a deal

There are many issues that could prevent a deal, not least the new demands to change certain working practices unions believe have been deliberately introduced to derail progress.

The planned restructuring of the entire network under a new body ‘Great British Railways’ is also muddying the waters.

Political support for the Boris Johnson-Grant Shapps reform has fluctuated with the political chaos in Downing Street, leaving the industry uncertain if and when permanent change will come, and the railways effectively being run and paid for by ministers who claim to oppose nationalisation.

In the short term though this dispute may come down to who has the higher threshold for the financial pain: the Treasury paying hundreds of millions in compensation, or rail workers sacrificing their pay.

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Markets react on second open after budget – as traders concerned over some announcements

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Markets react on second open after budget - as traders concerned over some announcements

The cost of government borrowing has jumped, while UK stocks and the pound are up, as markets digest the news of billions in borrowing and tax rises announced in the budget.

While there was no panic, there had been concern about the scale of borrowing and changes to Chancellor Rachel Reeves’s fiscal rules.

At the market open on Friday, the interest rate on government borrowing stood at 4.476% on its 10-year bonds – the benchmark for state borrowing costs.

It’s down from the high of yesterday afternoon – 4.525% – but a solid upward tick.

The pound also rose to buy $1.29 or €1.1873 after yesterday experiencing the biggest two-day fall in trade-weighted sterling in 18 months.

On the stock market front, the benchmark index, the Financial Times Stock Exchange (FTSE) 100 list of most valuable companies was up 0.36%.

The larger and more UK-focused FTSE 250 also went up by 0.1%.

While there was a definite reaction to the budget, uniquely impacting UK borrowing costs, the response is far smaller than after the UK mini-budget.

Many forces are affecting markets with the upcoming US election on a knife edge and interest rate decisions in both the UK and the US coming on Thursday.

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Budget: Hostile market response as chancellor suffers Halloween nightmare

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Budget: Hostile market response as chancellor suffers Halloween nightmare

First things first: don’t panic.

What you need to know is this. The budget has not gone down well in financial markets. Indeed, it’s gone down about as badly as any budget in recent years, save for Liz Truss’s mini-budget.

The pound is weaker. Government bond yields (essentially, the interest rate the exchequer pays on its debt) have gone up.

That’s precisely the opposite market reaction to the one chancellors like to see after they commend their fiscal statements to the house.

In hindsight, perhaps we shouldn’t be surprised.

After all, the new government just committed itself to considerably more borrowing than its predecessors – about £140bn more borrowing in the coming years. And that money has to be borrowed from someone – namely, financial markets.

But those financial markets are now reassessing how keen they are to lend to the UK.

More on Budget 2024

The upshot is that the pound has fallen quite sharply (the biggest two-day fall in trade-weighted sterling in 18 months) and gilt yields – the interest rate paid by the government – have risen quite sharply.

This was all beginning to crystallise shortly after the budget speech, with yields beginning to rise and the pound beginning to weaken, the moment investors and economists got their hands on the budget documentation.

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Chancellor challenged over gilt yield spike

But the falls in the pound and the rises in the bond yields accelerated today.

This is not, to be absolutely clear, the kind of response any chancellor wants to see after a budget – let alone their first budget in office.

Indeed, I can’t remember another budget which saw as hostile a market response as this one in many years – save for one.

That exception is, of course, the Liz Truss/Kwasi Kwarteng mini-budget of 2022. And here is where you’ll find the silver lining for Keir Starmer and Rachel Reeves.

The rises in gilt yields and falls in sterling in recent hours and days are still far shy of what took place in the run up and aftermath of the mini-budget. This does not yet feel like a crisis moment for UK markets.

But nor is it anything like good news for the government. In fact, it’s pretty awful. Because higher borrowing rates for UK debt mean it (well, us) will end up paying considerably more to service our debt in the coming years.

Rachel Reeves and Chief Secretary to the Treasury Darren Jones prepare to leave 11 Downing Street
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Rachel Reeves leaving 11 Downing Street before the budget. Pic: PA

And that debt is about to balloon dramatically because of the plans laid down by the chancellor this week.

And this is where things get particularly sticky for Ms Reeves.

In that budget documentation, the Office for Budget Responsibility said the chancellor could afford to see those gilt yields rise by about 1.3 percentage points, but then when they exceeded this level, the so-called “headroom” she had against her fiscal rules would evaporate.

Read more:
Chancellor defends £40bn tax rises
Hefty tax and spending plans a huge gamble – analysis

In other words, she’d break those rules – which, recall, are considerably less strict than the ones she inherited from Jeremy Hunt.

Which raises the question: where are those gilt yields right now? How close are they to the danger zone where the chancellor ends up breaking her rules?

Short answer: worryingly close. Because, right now, the yield on five-year government debt (which is the maturity the OBR focuses on most) is more than halfway towards that danger zone – only 56 basis points away from hitting the point where debt interest costs eat up any leeway the chancellor has to avoid breaking her rules.

Now, we are not in crisis territory yet. Nor can every move in currencies and bonds be attributed to this budget.

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Markets are volatile right now. There’s lots going on: a US election next week and a Bank of England decision on interest rates next week.

The chancellor could get lucky. Gilt yields could settle in the coming days. But, right now, the UK, with its high level of public and private debt, with its new government which has just pledged to borrow many billions more in the coming years, is being closely scrutinised by the “bond vigilantes”.

A Halloween nightmare for any chancellor.

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Football financier Harris spearheads £200m bid for Crystal Palace stake

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Football financier Harris spearheads £200m bid for Crystal Palace stake

The football financier Keith Harris is spearheading a bid to buy a 45% stake in the Premier League football club Crystal Palace in a deal that could be worth close to £200m.

Sky News has learnt that Mr Harris is advising a group of businessmen including Zechariah Janjua and Navshir Jaffer on an offer to acquire the shareholding from Eagle Football, a vehicle created by American businessman John Textor and owner of a number of major clubs around the world.

Sources said on Thursday that the consortium advised by Mr Harris was a leading contender to buy the stake in the Eagles, although they cautioned that at least one, and possibly two, other parties were also in discussions with Mr Textor.

Mr Harris’s group, which would probably execute its deal through a recently established corporate vehicle called Sportbank, may also require financing from other investors as part of its plans, the sources added.

Eagle Football is said to be hopeful that a deal to offload its Crystal Palace shareholding would value the club, which recorded its first win of the Premier League campaign against Tottenham Hotspur last weekend, at more than £400m.

Stanley Tang, one of the founders of the US-based food delivery company DoorDash, is also understood to have expressed an interest in acquiring Eagle Football’s stake in Crystal Palace.

A spokesman for Mr Tang denied that he was in discussions to buy Eagle Football’s Crystal Palace stake.

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Mr Textor, who declined to comment, is keen to own a controlling interest in a club in English football’s top flight, and came close to securing a deal to buy Everton during the summer.

Instead, Everton’s long-standing owner agreed a transaction with Dan Friedkin, the owner of Italian Serie A side AS Roma.

Eagle Football’s other footballing interests include Olympique Lyonnais in France, Botafogo, which currently leads Brazil’s top division, and RWD Molenbeek in Belgium.

This week, the holding company issued a statement confirming that it is preparing to file confidentially with US regulators ahead of a public listing in the first quarter of next year.

Sky News revealed in August that Eagle Football had lined up Stifel and TD Cowen, the investment banks, to work on the initial public offering (IPO).

The stake in Crystal Palace is being sold by The Raine Group, which has been involved in recent deals involving Chelsea and Manchester United.

In its statement this week, Eagle Football said it would seek $100m from the sale of shares in the company ahead of an IPO, as well as a further $500m as part of the flotation itself.

It also wants to raise “up to $500m to retire existing senior debt, to be achieved through the sale of its interest in Crystal Palace Football Club and, possibly, the placement of long-term senior notes”.

Collectively, these moves are expected to help Mr Textor achieve an enterprise value for Eagle Football of around $2.3bn (£1.74bn), they said.

In the past, Mr Textor has spoken about his belief that public ownership of football teams provides fans with greater transparency about the running of their clubs.

He has described this as the democratisation of ownership – an issue set to face greater scrutiny now that a bill on football regulation has been reintroduced to parliament by the new Labour government.

Some clubs with listed shares, including Manchester United, have, however, endured a torrid relationship with supporters, partly as a result of their voting rights being controlled by a single dominant shareholder.

Mr Harris declined to comment on Thursday.

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