This article is more than 6 years old

This article is more than 6 years old

The planned reprivatisation of the east coast rail line is under fresh scrutiny after figures showed that train operators paid more than £200m in dividends to their shareholders last year, when taxpayers ploughed £4bn into the railways.

Three train operators – Virgin, Northern Rail and Transpennine – handed almost £100m to shareholders after receiving more than £1bn in government subsidies, including their portion of the grant to Network Rail.

Unions said the numbers, published on Wednesday in a comprehensive review of railway financing by the Office for Rail Regulation (ORR), showed rail was run with "the economics of the madhouse".

However, operators said their finances were open and transparent and profit margins averaged 3%.

Virgin Rail, which runs the west coast service and is one of three bidders shortlisted to run the east coast line, paid the highest dividends: £40m to its shareholders, Sir Richard Branson and Stagecoach. While it receives no direct subsidy, the government paid £298m to Network Rail for the upkeep of the track it uses.

Northern Rail, a joint venture between Serco and Dutch state rail subsidiary Abellio, paid £36m in dividends with subsidies totalling £713m. Transpennine returned £21m in dividends to owners First Group and Keolis, having received £52m in franchise payments from the government, which also paid £145m in track grants.

East Coast, the London-York-Edinburgh intercity service run by state-owned Directly Operated Railways, made a net payment of £16m to the government, returning £203m in franchise payments against a £187m track subsidy.

Only one private operator, South West Trains, made a net contribution, of £5m.

The TUC general secretary, Frances O'Grady, said the report highlighted again how private train operators relied upon public subsidies. "Rail franchising has provided train companies with the perfect cover to use taxpayers' money to line their shareholders' pockets," she said.

"It is laughable for ministers to carry on insisting that rail privatisation is delivering value for money. The government's decision to re-privatise the east coast mainline looks more foolish by the day."

A spokesman for the Rail Delivery Group said: "Any dividends paid by train companies need to be viewed against the £7.7bn they generate in revenue and against the phenomenal growth in passengers since franchising was introduced. This has enabled operators to increase fourfold the amount of money they return to government."

Virgin Trains claimed it could double East Coast's payments to government if it was not paying more to Network Rail and was running newer trains, saying: "It is a myth that public ownership of the railways would leave the taxpayer better off. The huge investment which has gone into the west coast means Virgin Trains paid £318m more than East Coast for annual rolling stock and track charges."

Last week three transport unions launched a legal challenge to the franchising of the east coast mainline. Aslef, RMT and TSSA are seeking a judicial review claiming a new timetable drawn up by the Department for Transport risks the interests of staff, passengers and taxpayers.

Unions are also challenging the direct award to First Group of an additional contract for the Thameslink franchise, without any tendering process.

The direct award is one of several granted by the DfT in the wake of the West Coast fiasco, as an interim measure while franchising was restored, although some contracts are now set to last until 2017, with an uncontested award to First Group until 2020 for Great Western being considered.

Labour has queried the level of payments as the DfT negotiates in the absence of competition - pointing out that direct awards to Northern Rail, First Capital Connect and First Great Western will see the train operators pay £331m less per year than in 2012-13 under exiasting franchises.

Mary Creagh, the shadow secretary of state, warned that the government's net contribution to train operating companies would "skyrocket" next year. She said: "Passengers and taxpayers are picking up the tab for this out-of-touch government's franchising fiasco with higher fares and more public subsidy."

The ORR's report also showed that despite the £4bn subsidy, passengers are shouldering an ever-increasing proportion of industry costs in fares – now 59.2%, compared with 55.6% in 2010-11.

Running costs have also fallen by 6.2% in that two-year period, based on pounds for every kilometre a passenger travels.

The report highlighted significant variations in the level of government funding around Britain – from £2.19 per passenger journey in England, to £7.60 per journey in Scotland and £9.33 per journey in Wales.

• This article was amended on 17 April. The original headline referred to a "£1bn subsidy"