A train company paid out nearly £500m to shareholders last year before telling rail unions that employees must take a real-terms pay cut for them to stay afloat.

More than 50,000 train workers across 13 train companies began three days of industrial action on Tuesday. The National Union of Rail, Maritime and Transport Workers (RMT) said it was striking in response to plans by the companies to cut jobs and real-terms pay, and worsen employment conditions. 

Rail chiefs have said that a cost-of-living pay rise, one of the RMT’s key demands, is “not sustainable in the current economic climate”.

The Rail Delivery Group, which represents the rail companies, said it had rejected a cost-of-living pay rise on the grounds that it would be ‘unfair to taxpayers’ given the emergency funding the government had provided to the industry during the pandemic. 

Yet just last week, the UK’s largest train operator, FirstGroup, boasted to investors that profits for this year were “ahead of expectation” and pledged to resume dividend payouts. The company handed its shareholders £500m in December 2021, just months after being awarded government contracts for running the South Western Railway and Transpennine Express. 

The company said the contracts have “no revenue risk and very limited cost risk” and that the new system “works better for passengers and taxpayers, while generating more resilient and consistent returns for shareholders” in a statement at the time.

The government changed how railways are run in 2020. Under the new contract-based system, it pays companies an annual fee for operating lines and bears responsibility for revenue. The previous franchise model meant companies bid to run specific routes and their profits were dependent on how many passengers used each line.

Abellio, which runs Greater Anglia, East Midlands Railway and West Midlands Railway, contributed €355m (£305m) to the profits of its sole shareholder – the Dutch state railway – according to latter's 2021 annual report.

The operator said it had expected to pay hundreds of millions of pounds in termination fees to the British government after rail franchises were replaced with contracts last year. But the Department of Transport waived part of the fee, allowing it to return the cash to the Dutch treasury coffers instead.

This week, UK Treasury chief secretary Simon Clarke said private and public sector workers should exercise “pay discipline” and take real-terms pay cuts to curb inflation. However, rail bosses have largely seen their pay continue to rise, or faced only superficial cuts.

In the last financial year, FirstGroup CEO Matthew Gregory was paid £840,000 – 6% more than he received in 2019-2020 and 30 times more than what the company’s lowest-paid workers earned, according to its latest annual accounts. 

By contrast, rail companies offered the RMT a 2% pay rise, with an additional 1% contingent on accepting changes to their terms and conditions, in their latest round of negotiations. 

Go-Ahead Group, which operates the Govia Thameslink Railway, paid its interim chief financial officer a salary of £100,000 a month from September 2021 to March 2022 while it recruited a permanent replacement. 

The company, which is not affected by this week’s strikes, recently announced it would resume paying dividends in 2022, having last paid out £30m to shareholders in 2019.

The CEOs of the six biggest train companies took home a combined salary of more than £5m in 2020.

A FirstGroup spokesperson said: “In 2021 we sold our North American businesses for a full strategic value. This enabled us to reduce our debts, make a substantial £336m contribution in support of our UK pension schemes and return some of the sale proceeds to shareholders. All of these activities, including the return of value to shareholders, were as a direct result of the sale of our North American businesses.” 

openDemocracy approached Abellio UK for comment but did not receive a response at the time of publication. However, the company contacted us after this article was published, saying: "The profits recorded in the latest accounts for the financial year ended March 2021 at two of our companies, Greater Anglia and West Midlands Trains, relate to the reversal of accounting provisions for the significantly greater losses recorded in the previous year’s accounts because these companies faced the uncertainty of exiting franchise agreements that were terminated due to the pandemic. Since the start of the pandemic these companies have been providing rail services under contracts with the DfT for a capped performance-related fee."

Update, 24 June 2022: We have updated this article to clarify that the pay demand rejected by the Rail Delivery Group was for a cost-of-living increase and to reflect the fact that Abellio contributed €355m to its parent company's profit rather than this money going to the company's sole shareholder.