Labour ministers have been accused of leaving Britain’s railways exposed to soaring fuel costs by refusing to allow train operators to lock in cheaper diesel prices before geopolitical turmoil sent energy markets into turmoil.
Senior railway insiders claim the Department for Transport blocked repeated attempts by operators to hedge fuel purchases, arguing that such arrangements amounted to “gambling with taxpayers’ money” despite widespread use of hedging across the transport and aviation industries.
The allegations have sparked fresh questions about Whitehall’s commercial judgement after a sharp rise in fuel prices following military tensions involving Iran sent operating costs surging across the rail network.
Industry figures warn the fallout could ultimately be felt by passengers through higher fares, reduced services or greater taxpayer subsidies as more operators come under state control.
At the centre of the row is state-owned TransPennine Express, which is reportedly facing a dramatic increase in its diesel bill after being unable to secure fuel at lower prices before markets spiked.
Sources suggest fuel costs for the operator could rise by as much as 75 per cent compared with last year’s expenditure of around £20 million, placing fresh pressure on the finances of a railway already heavily dependent on government support.
According to multiple senior industry figures, train operators were prevented from pursuing commercial fuel-hedging strategies after the Government assumed greater financial control of rail franchises during and after the Covid pandemic.
One senior rail executive whose company carries tens of millions of passengers each year said operators had repeatedly challenged the policy.
“When DfT took on the financial cost risk from the Covid era onwards, they told us not to hedge,” the source said.
“We’ve challenged that subsequently and always been told no as it’s government policy not to hedge fuel.”
Another industry insider suggested the reluctance originated within the Treasury, where officials feared criticism if fuel prices subsequently fell and hedging contracts proved more expensive than market rates.
“Apparently it’s a Treasury direction,” the source said. The risk is that if the oil price falls, the hedge funds make money at the expense of the taxpayer.
A third source was even more critical, claiming officials fundamentally misunderstood the purpose of hedging.
“When we applied to hedge the response was ‘no’, and the rationale was ‘HM Government doesn’t gamble’,” the insider said.
“We struggled to get very uncommercial civil servants to understand that hedging is commercially rational and is not gambling with taxpayers’ money.”
The claims have been firmly rejected by the Department for Transport.
A spokesman described the allegations as “misleading” and insisted the department had not received any formal requests from operators seeking permission to hedge fuel purchases during the past two years.
However, the dispute has reignited concerns about the commercial flexibility available to train companies operating under increasingly centralised government control.
Before the pandemic, parent companies such as FirstGroup and Arriva often purchased fuel across multiple transport divisions, enabling them to secure economies of scale and manage market volatility more effectively.
Industry figures argue that such arrangements helped shield operators from sudden energy shocks, reducing the risk that geopolitical events would translate directly into higher costs.
The issue has become particularly acute following the sharp rise in diesel prices earlier this year.
Wholesale red diesel prices surged by almost two-thirds between February and April, climbing to more than 117p per litre as global energy markets reacted to escalating tensions in the Middle East.
For operators dependent on diesel fleets, the increase represents a substantial financial burden at a time when passenger demand remains uneven and government finances are already under pressure.
Some industry observers have questioned whether ministers conducted sufficient due diligence when bringing operators into public ownership.
One rail source suggested it was difficult to believe that TransPennine Express management had not sought permission to hedge given the scale of its diesel requirements.
“I don’t know Chris Jackson well, but I do know him and he’s a clever, commercial guy,” the source said. “I simply don’t believe he didn’t ask permission to hedge on their large diesel fleet.”
A Department for Transport source defended the Government’s approach, insisting fuel hedging had not been a major issue during preparations for public ownership.
We have a pretty fearsome set of questions for train companies entering the public sector,” the source said. “‘What are you doing about fuel hedging?’ isn’t high up on that list of due diligence.”
The controversy comes as ministers continue expanding public control over Britain’s railways, a cornerstone of Labour’s transport agenda.
Critics argue that the fuel row illustrates the risks of greater state involvement in commercially sensitive decisions, while supporters maintain that public ownership offers greater long-term stability.
Rail historian Christian Wolmar said operators facing sharply higher fuel bills ultimately have only a limited number of options.
“Either you raise the ticket prices or cut back on the number of services to save the cost of running them,” he said.
“But cutting trains tends to put people off and lead to falling ticket sales over time.”
For passengers already grappling with some of the highest rail fares in Europe, the dispute raises an uncomfortable question: whether a decision made in Whitehall could end up costing travellers and taxpayers millions as fuel costs continue to climb.
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