It's quite simple.
The railways have been largely protected from the public sector cuts over the past few years, by the ORR/NR funding formulae and franchise agreements.
The Treasury now wants cuts in the subsidy to the railways over the next control period (CP5 - 2014-19).
Just guessing they want something like 20% cuts in subsidy, where would you cut?
References to McNumpty and DafT are just ignorant. There is a serious problem here.
The target will probably be low-utilisation rural/regional services (with the highest subsidy per passenger-mile).
GW and Northern/TPE will be among the first franchises to have to address this problem as they come up for renewal.
Whilst I agree that the industry needs to save money, I fail to see why all the savings should come from the reduction in staff and / or train services. Whilst the subsidy paid to Northern & TPE is not inconsiderable, it should be pointed out that the levels of patronage pretty much everywhere across those networks are far higher than when the franchises were let. As someone who travels on TPE trains across the network at all times of the day or night, I can assure you that the problem is not how to do away with the surplus supply of trains, but how to cope with the excessive passenger volumes - in particular at off peak times where trains are often more overcrowded than in the supposed "peak hours". The same applies for what are perceived underutilised rural lines. Many, the Whitby line for example, struggle to cope with demand for much of the year. What is needed here is extra capacity, not less.
As a start it might be prudent to look at the South, where the number of 8 / 10 car trains carting around fresh air never ceases to amaze me - especially where many similar services in the North are formed of 2 or 3 coaches and the passengers are struggling for air!
Also important, and seemingly being overlooked, is the issue of revenue protection - which needs to improve considerably in many places - to ensure that those people travelling on DOO trains, or doing short hops, or travelling in the evenings, actually pay for their journey. The threats of penalty fares and / or prosecution seem not to be working very well. Why look to save money, when you can't even collect all the money which is due to you?
Finally I can see no reason why many of the franchises need to be so heavily subsidised - especially in view of the aforementioned increases in patronage. Management contracts and longer franchises might solve some of this, whilst also retaining the level of service desired.
There are many ways to stop the industry wasting money, without the need to withdraw staff or train services. Big profits for the franchise holders would be a start.