NR transfer pushes ORR towards redundancy

Network Rail’s debt are now our debts. Of course, they always were, it was only accounting niceties and fudge that kept debts guaranteed by government from government’s books.

With the air now cleared, ministers and civil servants can think about how they might take advantage of their new-found freedom over NR as a “central government body in the public sector”, as Transport Secretary Patrick McLoughlin put it to MPs.

In that same statement, McLoughlin said it would “have no effect on rail fares, performance, punctuality, timetables, or safety”. I sincerely hope it has an effect on punctuality given the daily litany of NR infrastructure failures, such as Tuesday’s East Coast Main Line collapse in north London.

He also said that the Office of Rail Regulation would remain as NR’s economic and safety regulator. I don’t believe this is viable in the long-term. It’s hard to see DfT civil servants setting a budget and ministers agreeing that budget with their Treasury counterparts only for another group of civil servants at ORR to then crawl over it before it’s passed to a fourth government body, Network Rail. That all seems very inefficient!

There’s also the matter of DfT’s long-held but unused right to appoint a “special director” to NR’s board. McLoughlin is considering who to appoint and it will be fascinating to see how political the appointee is.

 

Switching Network Rail debts to government could increase sell-off pressure

This week could see Network Rail’s debts of around £40 billion added to Chancellor George Osborne’s account. It depends on a decision from the Office of National Statistics which is currently considering the situation.

For while NR is classed as a private company, it still uses its Financial Indemnity Mechanism (FIM) that sees government guarantee its borrowing. Whenever ministers announce rail investment, they are normally just allowing NR to borrow more to fund the scheme announced. Colloquially, they are doing little more than flexing NR’s credit card!

The Department for Transport explained FIM to the House of Commons Transport Select Committee: “The financial indemnity mechanism (FIM) is a direct UK sovereign obligation of the crown and cannot be cancelled for any reason (prior to its termination date in October 2052). This UK Government guarantee is unconditional, irrevocable and unlimited.”

With that description, it’s hard to see how NR’s debts have been kept off government books since the company was created from the ashes of Railtrack over a decade ago. Since its creation, NR has clung to its private company status and is regulated as a private company by the Office of Rail Regulation which decides every five years what income and spending NR should incur.

Much of the company’s money comes straight from government in the form of the Network Grant, which amounts to around £4bn a year, further strengthening the case for adding NR’s £40bn to the UK’s public sector net debt of £1,200bn. NR’s debts cost around £900m a year and it pays government around £450m as a FIM fee. In total, NR spending is around £7bn a year.

Last week, The Times reported that switching NR’s debt could lead to government ministers being responsible for agreeing such things as NR bonuses.

It could also make ORR’s economic and regulatory work irrelevant. Network Rail could became a DfT agency in the same way as the Highways Agency or the CAA. Budgets could be directly agreed with HM Treasury.

As Britain witnesses a level of rail investment not seen for decades, direct Treasury control could see pressure to reduce this spending, not least to reduce NR’s debt.

Taken to an extreme, government thoughts might turn to selling Network Rail in order to reduce UK debts. That would put the cat among the pigeons!