Published: 31st December 2013
The Department for Transport (DfT) has finally been forced to admit that it owns Network Rail, the massive company which owns and operates the UK’s rail infrastructure.
This follows an independent statistical decision taken by the Office for National Statistics (ONS) in light of the European System of National Accounts 2010 (ESA10) which comes into force across the EU from 1 September 2014.
The Government has long said that NR is a private public not for profit company but just about everyone else has thought that as the UK Government guarantees NR’s £30 billion debt via the Treasury, it has always in reality been Government owned. But by insisting that NR is private, the debt was kept of the UK balance sheet, despite the guarantees. This amount will increase to over £40 billion in the next five years because of the massive rail investment now underway.
The DfT issued a statement on its website that said the Office for National Statistics (ONS) announced following a review, Network Rail will be classified as a central government body in the public sector.
The government welcomes the ONS review and has always been committed to the transparent reporting of public liabilities. The change in Network Rail’s classification will mean that the company’s net debt, currently some £30 billion, will appear on the government’s balance sheet.
The Office for Budget Responsibility noted in its Economic and fiscal outlook published in December, that this will likely increase Public Sector Net Debt by about 2% of GDP and Public Sector Net Borrowing by 0.2% of GDP on average. The government remains committed to its plans to reduce the deficit and will continue to do so by taking difficult decisions to cut public spending and prioritise investment in infrastructure to deliver a stronger economy and fairer society. The new classification will be implemented from 1 September 2014 and until then Network Rail remains in the private sector.
Transport Secretary Patrick McCloughlin said; “I am committed to ensuring that Network Rail maintains the operational flexibility to continue to deliver a safe, punctual rail network and increased capacity for our busy railways and that it is able to attract a high calibre of staff, while still providing value for money and being accountable to Parliament.
My department will agree appropriate accounting and governance adjustments for Network Rail to ensure it can continue to deliver world class railway infrastructure when the company is reclassified for statistical purposes on 1 September 2014.
I have accordingly agreed a Memorandum of Understanding (MoU) with Network Rail that sets out how we will work together to develop and agree that framework.
This government remains committed to the railway. The ONS’ decision on the classification of Network Rail does not affect the planned improvement and investment in the railways, including Network Rail’s £38 billion settlement for the planned running of and investment in the railway in the 5 years from 2014.
This government’s plans for HS2 and the rail franchising programme set out in March this year are unchanged. The Office of Rail Regulation will remain the economic and safety regulator for the railway and the ONS’ decision will have no effect on rail fares, performance, punctuality, timetables, or safety.
Mr McCloughlin also said that his My department will continue to consider how to best secure the benefits of private investment in rail infrastructure and work with Network Rail to deliver the best possible railway for the benefit of the whole industry, its passengers, and the taxpayer.
Network Rail was set up after Stephen Buyers in the Labour Government decided to bankrupt Railtrack, set up by the previous Conservative government after the October 2000 Hatfield accident where four passengers died. Because of this, thousands of speed restrictions were imposed by track engineers paralyzing the rail network for nearly a year.
Railtrack had to pay hundreds of millions of pounds delay compensation to train companies with over £100 million to Virgin alone in the year after the accident.
Network Rail was set up in 2001 as the replacement organisation but without shareholders to answer to, just 100 Members to keep an eye on the way it was run but was politically classified as a private company and not subject to the Freedom of Information Act.
Apart from confirming what 99% of the population thought, officially becoming a Government body appears to change very little and NR says that the change was a largely technical matter and would not affect its governance, structure or investment plans.
But as a central government body there will have to be some changes although these are not clear yet. Will private investors for example want to put their money into a Government department for example to fund fleets of trains or new railways?
Some people point to the definition of nationalisation which is; ‘owned by the government’ as proof that it is a New Year nationalisation, disputed by the parties involved.
A Network Rail spokesman said it would be 'business as usual'. 'This reclassification is a statistical decision that does not alter the company's structure as a not-for-dividend company, limited by guarantee, with Members rather than shareholders. The business acts and operates today as it did yesterday, and its job of delivering a safe, reliable and improving railway for four million daily users continues.
This is despite the MoU acknowledging that some small changes will be necessary as NR becomes accountable to Parliament for its finances. There will be now change to the way NR continues to raise funding (debt) to carry on ongoing investment whilst the longer term funding options are considered.
'Critically, for example, the company will retain the commercial freedom to work collaboratively with train operators and suppliers in delivering sustainable improvements in the railway under the well established regulatory framework that provides stability of funding through the five year regulatory review process.'
The Rail Delivery Group said: “The railway is undergoing one of the biggest programmes of improvement in its history delivering more trains, better stations and faster journeys and this will not change. “With help from Government, the rail industry will remain focused on delivering its massive investment programme. This is encouraging more passengers and businesses to use the railway,
helping pay for further improvements. The effective partnership between public and private sectors is a winning formula for the railway that is delivering for passengers, businesses and taxpayers."