Railways are back on the government’s books

 

 

 

The news, slipped out just before Xmas, that Network Rail’s debt will simply be lumped in with the government’s in September 2014, is an occasion for a bit of gloating as well as of concern. This received surprisingly little attention even though my sources say that the Department for Transport was taken aback and is extremely discomfited by the decision.

The arrangement by which the debt – now £30bn, soon to be £50bn – was kept off the government’s books was always one of those ridiculous artifices that plague the way that politics is conducted and make the functioning of the state so obscure and incomprehensible for the ordinary public. These games are costly, too, as witnessed by the continuous revivals and reinventions of the PFI/PPP schemes that will leave a terribly expensive legacy for our children and grandchildren. The debt has mounted so rapidly because it reduces the notional amount of subsidy going into the industry each year, and is therefore another part of the whole artifice.

Network Rail should, of course, have simply been renationalised, a far simpler and more accountable alternative to the complex arrangement of creating it as a ‘company limited by guarantee’ with no shareholders and a debt guaranteed by government. However, Gordon Brown vetoed the idea which was favoured by the then transport secretary, Stephen Byers.

For the most part, I think this is a sensible rationalisation but there are concerns. Lumping a couple of percent onto the deficit looks bad politically and the Coalition is already well behind in its efforts to reduce the debt. So this may definitely result in greater scrutiny of the rail investment plans. They may well make an easy target for quick cuts.

However, on the other hand, the very complex mechanism by which rail investment levels are determined with the Office of Rail Regulation acting as a kind of arbiter and the government producing detailed figures for the Statement of Funds Available offers a level of protection against attempts to rein back spending quickly. Moreover, rail investment can be presented as infrastructure spending, which is seen in government circles as a Good Thing and that makes it less likely it will be a target for cuts.

The wider irony, of course, is that now, 20 years after privatisation, the government is so intricately involved in virtually all aspects of the railway  – fares, investment, timetable, rolling stock etc. But I have spent much of the last couple of decades pointing out that an industry dependent on subsidy can never be free of government involvement.

 

 

 

 

 

 

 

  • Greg Tingey

    One of the worries is that HMT will revert to doling out monies a penny-packets & refusing to look at longer-term investments.
    As is already happening over at TfL/LUL …..
    The second is that people will start not only believeing, but acting upon the ridiculously low passenger-numbers that ORR keep producing from virtually no evidence
    And, as you say, the tendency to micro-manage ( & therefore, inevitably totally screw-up) will continue to get worse.

  • marksl

    About time …. this has been long in coming but was sure to happen (and we have to wait until September 2014 for the formal change of status). As so often, a decision embarrassing to the Government is slipped out during a holiday period.
    CW has written before about the huge Network Rail debt. See most recently in Rail 721, May 2013:
    http://www.christianwolmar.co.uk/2013/05/rail-721-rail-finances-undermined-by-network-rails-28bn-debt/
    How this has been allowed to grow so large without action by the Treasury is worthy of a study – one from a transport academic can’t be far off.
    What is most striking is that the public financing of British Rail by contrast was structured from 1974 to 1994 to prevent the BRB’s debt rising. From memory, it was no more than £1.5 bn when privatisation and splitting up the railways began in April 1994.
    The history of British Rail’s debt is worth looking at as a comparison.
    In ‘Fire and Steam’, CW describes how on nationalisation the debt of the Big Four companies was rolled into bonds called ‘British Transport Stock’ which paid interest at a low rate. British Transport Stock was a noose round the BTC which contributed to its deficits and led to Stedeford and Beeching. Under the 1962 Transport Act, which abolished the British Transport Commission and created the British Railways Board, a significant element of the BTC’s debt was written off. It rose again under Beeching and his successors. There was further writing off and reduction of the total debt under the 1968 Transport Act (which brought in the Cooper Brothers formula for individual line support grants). Finally, the Railways Act 1974, the best Act the railways ever worked up, created the Passenger Service Obligation (PSO), wrote off much of the BRB’s debt, and most importantly started the External Finance Limit (EFL).
    It was the EFL which effectively kept BR’s debt under strict control for 20 years to 1994. It set an overall ceiling combining the PSO (subsidy) and borrowing limits. (Some may remember an EFL of £715 million being set one year, perhaps 1978, which caused Sir Peter Parker to quip that ‘BR will catch the 7.15’.)
    The destruction of the vertically integrated British Rail thus also destroyed the overall control on public funding of the railways which the EFL provided. Railtrack started to mushroom debt and matters got even worse when it was replaced by Network Rail.
    Britain now has railways with a level of debt similar to that of France, if not on the scale of the Japanese National Railway debt before JNR was divided up – £150 billion in 1987 (see CW’s Rail 721 article). Quite an achievement, and and other highly damaging consequence of the 1993 Railways Act and all that has flowed from it.

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