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!

Published by

Philip Haigh

Freelance railway writer, former deputy editor at RAIL magazine - news, views and analysis of today's railway.

One thought on “Switching Network Rail debts to government could increase sell-off pressure”

  1. Phil Haigh is not the first person to suggest this, but a Tory Government who ventured on this course of action would come under much criticism. They certainly would not promote it before the May 2015 Election, and it would cause a major rift with the LibDems. It would demonstrate finally that George Osborne is an incompetent chancellor, he is a bit wet behind the ears, as to re-run an historical disaster. The way they could bring in private finance is to turn debt ob the ‘Network Rail Credit Card’ as Roger Ford so eloquently describes it. It is worth remembering that Labour, Byers and Vadera pulled the plug on Railtrack when its total borrowing was less than a mere £5bn!
    There may not be the vocal opposition that came from the late Robert Adley, but the Lords would probably delay it at least a year, forcing the Tories to invoke the Parliament Act if they wanted to get it through. If they were to put it in their 2015 Manifesto, it would be laughed out of court, so we shall see!

Leave a Reply

Your email address will not be published. Required fields are marked *