Heritage Railway Governance

There was a long list of things that the NPO grant was supposed to fund. It wouldn't surprise me to learn that the new telephone system for Park Street will probably have cost more of the grant than will be spent on lineside conservation!

 

As the author of several grant applications (I'm just starting on a new one now) I fully understand that, but I think it would be a jump too far to divert money requested for lineside maintenance into the MPD budget (other than for making and fitting better spark arresters!). I also think that passengers travelling on a train actually have their eyes set on the landscape beyond the boundary fence - provided the there are no trees or cutting sides to block the view. I agree that the trees can be partly dealt with (as far as the boundary fence) whereas cutting sides we're stuck with. Extra money for lineside maintenance is money for moneys sake to a degree, the NYMR has always had a small but dedicated band who have done a sterling job in keeping on top of the job with minimal resources.

 

I really can't wrap my head around what appears to be people criticising a railway for accepting a grant for what is realistically essential work? Maybe I'm missing something, but maintaining the lineside is going to happen regardless, so better off to have money put aside for it, then taking it out of the budget for the stuff you really want to do? If it is what encourages the railway to maintain it in a way the works for the railway and the environment, even better. Plus, if we want to consider a 'heritage' image, was it the norm for branch lines of old to have scruffy and overgrown line sides?

And to stop and think about it for a moment, keeping the lineside tidy and managing the growth is probably one of the easiest ways to try to control the start of lineside fires. How much can that cost is it all goes wrong?

 

The question is whether the grant is as you describe - in which case I completely agree - or the refocusing of objectives has meant that this activity has grown to a point where it becomes a central focus to the possible detriment of the railway that's at the core. In the context of governance, rather than NYMR specifically, it is interesting to consider how those decisions fit into the wider picture of boards and their effective accountability - and ability to motivate staff and volunteers to continue to turn out.

 

Who is criticising the NYMR for accepting this grant? Not me, they can make good use of every penny they can get and with grant aid its one less thing for the fare box to cover, although I don't think that the lineside maintenance budget was ever significant in the overall scheme of things. What I am saying is that it is perhaps being over-rated in success terms, when it formed only a part of the NPO award, and will make little or no difference to the running of the railway.

 

The point that’s being missed is that the NPO grant was only possible because of the broadening of the NYMR’s charitable purposes. The membership have endorsed that change of emphasis and the financial benefits are already becoming apparent.
£250k a year goes a long way towards covering the increased cost burden of over £1 million per annum with the recent Gift Aid changes potentially making a further big dent.

 

And that answer is why clarity is essential. £250k is valuable and I will take you at your word on being enabled by the structural changes; there is nothing in those changes that made Gift Aid possible when it was previously impossible.

 

Are you sure about that?

 

And the question you are not answering is whether these additional grants, enabled by widened charitable objectives, help to fund the existing operation in anyway (e.g., an existing overhead share, efficiency measures resulting in tangible cost reductions) or are simply a new source both income and expense. If the latter, it's unlikely change the financial viability of the organisation.

I don't mean to come across as critical; I am genuinely interested in the response given that during my (relatively short so far) career as an accountant you don't have to look far to find instances of organisations looking to new incomes streams without giving serious thought to fixing the fundamental issues facing the core of their business.

 

As always, I stand to correction. But the charity has continued to exist, and the purposes didn't change in a way that was relevant to fares.

 

If anyone is missing the point, or perhaps being disingenuous, I suggest that it is you! The announcement of the NPO grant gave the following information and objectives:

One of the UK’s most popular attractions, the North Yorkshire Moors Railway (NYMR) has been awarded a £750,000, National Portfolio Organisation (NPO) grant by Arts Council England to help the heritage charity continue its vital work in conservation, preservation, education and engaging communities.

The NYMR will receive £250,000 per year for the next three years to support its charitable activities. In total, 990 organisations will receive a share of £446 million (each year) ensuring that more people in more places can find fantastic, fulfilling art and culture on their doorsteps.

Spread across three years, the funding will be used across a variety of projects and activities at NYMR, including:

Restoring visitor numbers to pre-COVID levels
Improving on-station and on-train interpretation
Expanding NYMR dining services
Improving the educational offer to school groups
Implementing and embedding its comprehensive ‘Fuss Free Access‘ programme to remove all barriers to travel for those with specific needs and their friends and families
Building on NYMR’s diverse demographic strength to broaden still further its audience base
Working with urban community leaders and its existing urban area groups to encourage volunteer engagement
Creating an enhanced focus on long-term skills development in traditional and new technology
Setting standards for rail heritage by confronting CO2 emissions, and working with local partners to offset them

Please can you explain which of these objectives would not have been covered by the existing objectives of an educational charity and its commercial arm? Especially as in the (much vaunted by you) area of lineside conservation we already had a group funded by HLF as part of the YMJ award.

By the time the NPO award has been allocated across all the areas listed it seems very likely that none will receive a major boost, although I freely admit that every little helps.

 

Some thoughtful comments in recent posts so I'll try and address them all. It's correct that claiming Gift Aid on some fares was possible, but not all. Specifically HMRC accepted that the purchase of an All Line ticket (between Pickering and Whitby) allowed the purchaser to view the work of the Charity but that wasn't allowed for shorter journeys. The logic of that, when there is virtually no charity controlled heritage beyond Grosmont, is difficult to comprehend but that was HMRC's stance. However the NYMR's demonstrable commitment to being a multi-purpose charity has convinced HMRC that what are , in effect, admission charges rather than traditional fares for a train journey enables the NYMR to claim Gift Aid on a far larger scale. A poster on another site observed, after running the numbers, that's "pretty savvy". I couldn't have put it better.

It's not just the wider charitable purposes that are transformational; it's the transition to being a multi -purpose charity, albeit one that still has a heritage railway as a key component. That commitment was pivotal in securing the NPO grant support over three years. Had the NYMR been perceived as just a traditional heritage railway charity its application would almost certainly never have left the starting blocks.

61264 asks what objectives have been added (and there are obvious ones such as the promotion of the health, social and welfare benefits of volunteering) but the real question ought to be which of the list of objectives could have been achieved without the grant?
That takes us into the area identified by steam-mad and the answer is few, if any. If that sounds alarmist then its needs to be. Steam-mad observes sensibly that just looking at new income streams must not mask the need to fix fundamental issues facing the core business. The NYMR Boards identified some time ago, and it has since become apparent to a number of other heritage railway management teams, that the traditional business model no longer works. It assumed that membership fees, ticket sales and secondary spend, sustained by volunteer input, would generate a surplus large enough to fund essential capital investment. With huge cost inflation, increased regulation ( which directly affects the attraction of volunteering) and pressures on consumer spending many heritage railways are not just failing to break even; they're incurring massive annual losses. If they don't take radical action they will fail.

One way of possibly fixing that fundamental issue would be to slash costs. The SVR appears to be going down that route probably because its corporate structure doesn't give it much option. To succeed the NYMR would need promptly to eliminate £1 million plus of cost from its activities. The impact of that could make the angst at the SVR look like a walk in the park. It would certainly make the NYMR very unattractive to volunteers as services and operating days would have to pruned severely.

Commitment to being a wider purpose charity offers a positive opportunity to address business fundamentals with new sources of revenue. They includes grants, such as the NPO funding. and the savvy changes to Gift Aid. Not all heritage railways are so fortunate but that hasn't happened by accident. It's part of a plan starting with the structure changes and revised charitable purposes which is now demonstrably paying off. Anyone who remembers the A team on TV will identify with "I love it when a plan comes together!"

The winner isn't any faction, those who supported the changes or those who, in all sincerity, thought they were wrong. The winner is the NYMR and all those involved with it and who wish to see it prosper and develop.

 

Thankyou for that comprehensive response. I’m sure many heritage railways will be watching the success or otherwise with interest.

A couple of questions, one of which I suspect you can answer now, and one which may not be apparent for a little while.

Firstly, on VAT: I seem to recall from previous discussion (but I am not an accountant) that there is a VAT implication to changing from a “transport” model to an “attraction” model. As I recall, transport undertakings qualified for zero rating on the fares, whereas entry fees to an attraction have the full 20% VAT rate. Given that, the financial benefit of the gift aid was more nuanced, because potentially what you gained in Gift Aid you lost in VAT. Has the NYMR found a way round that such that it can benefit from GA while retaining the zero rating of a transport undertaking?

The other, longer term, question concerns the impact on membership. AIUI, a £40 fare gives travel benefit for the whole year, potentially rather more valuable than being a member of the society. I appreciate that being a member confers other benefits, but if the travel discount is better achieved by buying a single £40 river, and the Democratic / governance benefit is largely illusory (as per your other posts) then what exactly does a NYMR member get in this new model beyond a warm fuzzy feeling? So the long term question is whether this new model results in a significant decrease in memberships? There does appear to be a tone that the NYMR increasingly seems not to value having members and instead prefers to pursue other options for revenue to supplement the fare box!

Tom

 

I hold a small number of shares in the GWR purchased to support the Bridges to Broadway project. I bought those shares because I love the railway and I wanted to feel involved in a small way. I am not a working volunteer at the moment and have no medium term plans to become so. As a shareholder I have received the notice of the EGM and of course have a vote.

One of the core attractions of the GWR to me is that it is very clearly a 'happy' railway - this comes across both from its written communications and from regular visits. I have never met a grumpy member of staff at the GWR. First impressions last and ongoing positive experiences encourage loyalty and repeat visits.

Reading the Notice of the EGM and in the particular the Update to Shareholders at the back of the document I am again struck that what comes across is a genuine enthusiasm for everything the railway has done in the last 12 months and what it plans to do going forward. It strikes me that the GWR has the balance right between the aims of a preserved railway - something we all broadly agree about and establishing the strategic means of achieving and sustaining those aims. The evidence to me is that that the current Board know what they are doing and are doing a good job.

I'm not knowledgeable about company law and am as grateful that there are people willing it serve as Directors as I am grateful to everyone else who volunteers to make the GWSR what it is. Regarding this EGM I think it is far to easy to see 'conspiracy' where there is no evidence and worse, for the railway to be dragged down by what are essentially personality politics. This hobby is about seeing heritage railways flourish and we should support those willing to give there time to make this happen at all levels of the organisation. It is a mistake to think of a heritage railway as having a hierarchy that parallels 'real life' - the Directors are surely as much 'volunteers' as everyone else giving their time freely to make the GWR 'happen'?

I trust the Board and I think they have very clearly spelt out the whys and wherefores of the EGM and for this reason I will be casting my vote in support of their proposals.

 

Short answer Tom....Yes! As the NYMR Finance Director has wryly observed conflicting logic in tax law is not unusual so please don't ask me to justify it from that angle. The nearest I could get is that the admission charge involves transport to view the work of the charity.

The impact on membership is under review. Much depends on the purpose of membership. Is it simply to secure a financial benefit for the member or for the railway? How important is the income from membership fees? On the NYMR it's around 2% / 3% of the total although of course members tend to be the principal donors to appeals and leavers of legacies. One option would be to extend the traditional 50% discount to the Unlimited Pass which, incidentally, is not strictly speaking an annual pass but one valid for 12 months from the first date of use.

To illustrate the effect of that each membership costs around £20 a year to service ( Four issues of the NYMR printed magazine plus Annual Report and AGM costs.) If the NYMR were to apply the 50% discount to the £40 Annual Pass then it would (assuming the member would have travelled anyway) end up with no net financial benefit. Quite possibly the other benefits of having members on board make it worthwhile but it's a far from clear cut issue.

There's certainly no wish to discourage members but I wonder if a smaller membership that joins to support a heritage railway is preferable to a larger one where the extra numbers join primarily to secure financial benefit for themselves?

 

The NYMR is a Heritage Railway hence zero VAT on fares. Plus being a Charity can claim 25% as gift aid on a £40 full fare at no additional cost to the passengers provided they allow those passengers unlimited travel for a period of 12 months from their initial visit.

Members can still claim a 50% discount on a fare, not just the Annual Pass, so they are actually still better off than the 2022 season, when their 50% discount was on a higher fare.

I cannot see where the problem is for NYMR supporters; either
a reduced fare (compared to 2022) plus 12 months travel on the full fare which enables the railway to claim a 25% back as gift aid at no additional cost to the passengers. Thus better value for money for the passenger and increased income for the railway (as a result of more passengers plus gift aid). Win win.
Or
Increased fares with reduced timetable.

Thus members can visit the NYMR in 2022 knowing the timetable has being maintained at 2022 levels for a slightly lower fare, with a Hop on Hop off service without the need to reserve seats as per 2022. What’s not to like!

pS I am also a GWSR shareholder!

 

Thankyou for that.

Tom

 

I'll make two points here: firstly the list of objectives: (there are obvious ones such as the promotion of the health, social and welfare benefits of volunteering) Surely these benefits are implicit in the broader overall aims of the charity and really should not have to be spelled out explicitly.

Secondly, the second half of your post makes little sense. In what way does a grant providing support for lineside maintenance (for example), an area where traditionally next to no money has been spent on it, assist in the funding of the core business? And history tells us that anticipated measures to generate additional Capex funds don't always work - this, after all was the justification for Whitby running and the associated additional costs of that exercise, both financial and human, seem to have been anything but helpful.

 

Thanks to @Lineisclear for some very clear posts.

As an observation on the business model, I would say that it has been clear for a very long time that the business model relied on significant external funds beyond the fare box and the membership. Many railways have had major fundraising efforts of various kinds and made extensive use of the HLF.

I think all that is evolving is a recognition that there are other sources of funding than HR have traditionally accessed and they are necessary. To me this is evolution rather than an outright failure of the business model. The business model remains three pillared 1) earn money from visitors 2) get external funding 3) make extensive use of volunteers.

I am not sure that the language of “business model failure “ is entirely helpful. My reading of the effect on people is that it has a slightly scary overtone that tends to set up a “flight or fight response” which doesn’t aid good communication. I have watched the effects on this forum a few times and also on my own railway too.

I am fully in agreement with your observations about members. The question “what do we want members for?” is critical and far too often ignored. The result is that insufficient thought is put into managing them, encouraging them and making best use of them.

IF members desire is to make a contribution to their railway that is financially meaningful through their membership then there is an argument for significant increase in price. Whether the market would accept that or not is not something that has been tested so far as I know. But the “pricing” of memberships and benefits is clearly going to have to be rethought OR railways conclude that the benefit to them of legacies and donations means the status quo is acceptable. I don’t have a preference other than I wish it were being considered with more rigour.