Train strikes: Why the numbers don’t add up to a rail deal

Published

2 years ago

January 6, 2023

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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.

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.”

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.

Business

US-UK trade deal ‘done’, says Trump as he meets Starmer at G7

Published

37 mins ago

June 17, 2025

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US-UK trade deal 'done', says Trump as he meets Starmer at G7

The UK-US trade deal has been signed and is “done”, US President Donald Trump has said as he met Sir Keir Starmer at the G7 summit.

The US president told reporters: “We signed it, and it’s done. It’s a fair deal for both. It’ll produce a lot of jobs, a lot of income.”

As Mr Trump and his British counterpart exited a mountain lodge in the Canadian Rockies where the summit is being held, the US president held up a physical copy of the trade agreement to show reporters.

Several leaves of paper fell from the binding, and Mr Starmer quickly bent down to pick them up, saying: “A very important document.”

Sir Keir said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”

Mr Trump added that the UK was “very well protected” against any future tariffs, saying: “You know why? Because I like them”.

However, he did not say whether levies on British steel exports to the US would be set to 0%, saying “we’re gonna let you have that information in a little while”.

What exactly does trade deal being ‘done’ mean?

The government says the US “has committed” to removing tariffs (taxes on imported goods) on UK aerospace goods, such as engines and aircraft parts, which currently stand at 10%.

That is “expected to come into force by the end of the month”.

Tariffs on car imports will drop from 27.5% to 10%, the government says, which “saves car manufacturers hundreds of millions a year, and protects tens of thousands of jobs”.

The White House says there will be a quota of 100,000 cars eligible for import at that level each year.

But on steel, the story is a little more complicated.

The UK is the only country exempted from the global 50% tariff rate on steel – which means the UK rate remains at the original level of 25%.

That tariff was expected to be lifted entirely, but the government now says it will “continue to go further and make progress towards 0% tariffs on core steel products as agreed”.

The White House says the US will “promptly construct a quota at most-favoured-nation rates for steel and aluminium articles”.

Other key parts of the deal include import and export quotas for beef – and the government is keen to emphasise that “any US imports will need to meet UK food safety standards”.

There is no change to tariffs on pharmaceuticals for the moment, and the government says “work will continue to protect industry from any further tariffs imposed”.

The White House says they “committed to negotiate significantly preferential treatment outcomes”.

Mr Trump also praised Sir Keir as a “great” prime minister, adding: “We’ve been talking about this deal for six years, and he’s done what they haven’t been able to do.”

He added: “We’re very longtime partners and allies and friends and we’ve become friends in a short period of time.

“He’s slightly more liberal than me to put it mildly… but we get along.”

Sir Keir added that “we make it work”.

The US president appeared to mistakenly refer to a “trade agreement with the European Union” at one point as he stood alongside the British prime minister.

Mr Trump announced his “Liberation Day” tariffs on countries in April. At the time, he announced 10% “reciprocal” rates on all UK exports – as well as separately announced 25% levies on cars and steel.

In a joint televised phone call in May, Sir Keir and Mr Trump announced the UK and US had agreed on a trade deal – but added the details were being finalised.

Ahead of the G7 summit, the prime minister said he would meet Mr Trump for “one-on-one” talks, and added the agreement “really matters for the vital sectors that are safeguarded under our deal, and we’ve got to implement that”.

Business

Poundland to stop paying rent at hundreds of stores in rescue deal

Published

16 hours ago

June 16, 2025

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Poundland to stop paying rent at hundreds of stores in rescue deal

Poundland will halt rent payments at hundreds of its shops if a restructuring of the ailing discount retailer is approved by creditors later this summer.

Sky News has learnt that Poundland’s new owner, the investment firm Gordon Brothers, is proposing to halt all rent payments at so-called Category C shops across the country.

According to a letter sent to creditors in the last few days, roughly 250 shops have been classed as Category C sites, with rent payments “reduced to nil”.

Poundland will have the right to terminate leases with 30 days’ notice at roughly 70 of these loss-making stores – classed as C2 – after the restructuring plan is approved, and with 60 days’ notice at about 180 more C2 sites.

The plan also raises the prospect of landlords activating break clauses in their contracts at the earliest possible opportunity if they can secure alternative retail tenants.

In addition to the zero-rent proposal, hundreds of Poundland’s stores would see rent payments reduced by between 15% and 75% if the restructuring plan is approved.

The document leaves open the question of how many shops will ultimately close under its new owners.

A convening hearing has been scheduled for next month, while a sanction hearing, at which creditors will vote on the plan, is due to occur on or around August 26, according to one source.

The discounter was sold last week for a nominal sum to Gordon Brothers, the former owner of Laura Ashley, amid mounting losses suffered by its Warsaw-listed owner, Pepco Group.

Poundland declined to comment.

Business

Israel-Iran conflict poses new cost of living threat – here’s why

Published

22 hours ago

June 16, 2025

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Israel-Iran conflict poses new cost of living threat - here's why

The UK’s cost of living crisis hangover is facing fresh pressure from the Israel-Iran conflict and growing tensions across the Middle East.

Whenever the region, particularly a major oil-producing country, is embroiled in some kind of fracas, the potential consequences are first seen in global oil prices.

The Middle East accounts for a third of world output.

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Iran’s share of the total is only about 3%, but it is the second-largest supplier of natural gas.

Add to that its control of the key Strait of Hormuz shipping route, and you can understand why any military action involving Iran has huge implications for the global economy at a time when a US-inspired global trade war is already playing out.

What’s happened to oil prices?

Global oil prices jumped by up to 13% on Friday as the Israel-Iran conflict ramped up.

It was the biggest one-day leap seen since Russia invaded Ukraine in February 2022, which gave birth to the energy-driven cost-of-living crisis.

From lows of $64 (£47) a barrel for Brent crude, the international benchmark, earlier this month, the cost is currently 15% higher.

Iran ships all its oil to China because of Western sanctions, so the world’s second-largest economy would have the most to lose in the event of disruption.

Should that happen, China would need to replace that oil by buying elsewhere on the international market, threatening higher prices.

How are natural gas prices holding up?

UK day-ahead prices are 15% up over the past week alone.

Europe is more dependent on Middle East liquefied natural gas (LNG) these days because of sanctions against Russia.

The UK is particularly exposed due to the fact that we have low storage capacity and rely so much on gas-fired power to keep the lights on and for heating.

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The day-ahead price, measured in pence per therm (I won’t go into that), is at 93p on Monday.

It sounds rather meaningless until you compare it with the price seen less than a week ago – 81p.

The higher sum was last seen over the winter – when demand is at its strongest.

What are the risks to these prices?

Market experts say Brent crude would easily exceed $100 (£74) a barrel in the event of any Iranian threats to supplies through the Strait of Hormuz – the 30-mile wide shipping lane controlled by both Iran and Oman.

While Iran has a history of disrupting trade, analysts believe it will not want to risk its oil and gas income through any blockade.

What do these price increases mean for the UK?

There are implications for the whole economy at a time when the chancellor can least afford it, as she bets big on public sector-led growth for the economy.

We can expect higher oil, gas and fuel costs to be passed on down supply chains – from the refinery and factory – to the end user, consumers. It could affect anything from foodstuffs to even fake tan.

Increases at the pumps are usually the first to appear – probably within the next 10 days. Prices are always quick to rise and slow to reflect easing wholesale costs.

Energy bills will also take in the gas spike, particularly if the wholesale price rises are sustained.

The energy price cap from September – and new fixed-term price deals – will first reflect these increases.

How does this all play out in the coming months?

So much depends on events ahead.

But energy price rises are an inflation risk and a potential threat to future interest rate cuts.

While LSEG data shows financial markets continuing to expect a further two interest rate cuts by the Bank of England this year, the rate-setting committee will be reluctant to cut if the pace of price growth is led higher than had been expected.

At a time when employers are grappling with higher taxes and minimum pay thresholds, and consumers a surge in bills following the ‘awful April’ hikes to council tax, water and other essentials, a fresh energy-linked inflation spike is the last thing anyone needs.