Posted 17th December 2013 | 14 Comments

Network Rail to become public sector body in 2014

Transport secretary Patrick McLoughlin

Transport secretary Patrick McLoughlin said he remained 'committed to the railway'

NETWORK RAIL will become a public sector body during the coming year, following a reclassification of the company's status by the Office for National Statistics. The present company was set up in late 2001 to take over from Railtrack, but although NR had no shareholders it was said to be in the private sector.

The change in its status will place its current debt of some £30 billion into the public accounts for the first time. Network Rail said the change was a largely technical matter and would not affect its governance, structure or investment plans.

Network Rail will be now be formally classified as a 'central government body in the public sector', and the company admitted that some 'small changes' will be inevitable. There is also now a question mark over how the organisation will raise funding for future investment in the longer term.

Another point of some dispute is whether the change represents actual nationalisation. The dictionary definition of the word is 'government ownership', but the DfT has maintained that the term is inappropriate in this case, although it has not explained why.

Meanwhile, the Office for Budget Responsibility had said on 5 December that the change was likely to increase Public Sector Net Debt by about 2 per cent of GDP and Public Sector Net Borrowing by an average of 0.2 per cent of GDP.

The new status will be backdated to April 2004, and come into force on 1 September 2014.

In a statement to Parliament, transport secretary Patrick McLoughlin 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."

A Network Rail spokesman said it would be 'business as usual'. A statement from the company explained: '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.

'Network Rail and the DfT have also published today a Memorandum of Understanding that gives some more detail of how they will work together to ensure that the company's business continues as usual. The MoU also acknowledges that some small changes will be necessary as the company becomes accountable to Parliament for its finances. At least initially, the company will continue to raise debt to fund its ongoing investment programme 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.'

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • david c smith, milton keynes

    For what it's worth :-
    Sweden was the first EU country to adopt " vertical seperation" between rail infrastructure and operating companies , a model that was influential in the UK at the time of privatisation.

    More recently the Swedes amalgamated road, rail and water infrastructure under one integrated body. If such a model were to be emulated here there might be a national body to manage Highways Agency roads together with rail main lines, with local managers for local rail lines and more minor roads.

  • MICHAEL, WESTBURY

    Who will buy this Rail Network ? Peoples perception of privatisation is an organisation that doesnt get public support. Would be a piss poor sell off if public finance has to continue funding it. Bit pointless really.

  • Tony Pearce, Reading

    Wuld anyone buy shares in a new 'Railtrack' ? I don't think so. (Certainly not me !). Although the Railways are in a much better shape (in some places very good) shape than they were, they are still a 'Political Potato' particularly in South East England where most people use the trains. Gordon Brown spent a lot of effort to make sure the Railways were not regarded as a Government owned organisation to ensure borrowing was easier. He will not like the latest EU ruling on Network Rail. Financing the railways has always been hugely difficult since the WW2. We probably are never going to get it right. If and when interest rates rise, it will be interesting to see if the Government is as keen to invest in the network as it has been in the last few years.

  • Lutz, London

    I think neither ourselves nor the politicians will have much choice in the matter. When it comes to the state's finances, the likes of health services and social welfare will take precedence with the latter continuing consuming more of those resources, while the cost of financing the debt will rise as the world economies recover.

    I suspect that the sale of the rail assets has already been considered as a means of contributing to the debt reduction.

  • Chris Neville-Smith, Durham, England

    "The debt will be, and with present policies, will remain, well above the safety threshold of around 60%. In the meantime it is going get a lot more expensive to maintain that debt, so we will have to sell assets stay afloat."

    And the counter-argument is how much it will cost us to do that. last time we tried selling off the railways, we ending up picking up the tab of billions, if not tens of billions, for the massive cock-up that was Railtrack. And I don't buy the argument that next time it will be different, honest.

    Contrast this with the situation we have at the moment. Yes, debt to GDP is way above the ideal 40%, but we are coping with it. Whilst we should ideally look to reduce this, the risk of another Railtrack massively outweighs the risk of an extra 2% on the debt-GDP figures.

    My firm view is that creating another Railtrack to make the debt to GDP figures look a little better is insane.

  • Tony Pearce, Reading

    The National Debt should be around 40% of GDP according to most Economists, - as it was in 2004. (31% in 1991) It is now 90% and rising though not as fast as it was. Getting it back down to 40% is calculated to take at least 9 years, and then we have to pay off that huge debt we have borrowed because the interest payments on it will suck the life out of Government investment. That all presumes that everything goes nicely in the World Economy, and we have no hiccups such as wars (China v Japan ?) or environmental problems to upset it. If Governments are reducing spending this may well mean reduced investment in Government owned organisations such as the NHS, Schools and Network Rail. UK Government borrowing is not in a happy place.

  • James Pritchard, Southampton

    Although one must accept risks when investing money, the Railtrack case is certainly a bit murky. Have we forgotten that Stephen Byers eventually admitted to "telling untruths"? I can't seem post the link to the July 2005 BBC News article, but it is there if you search for it.

  • Lutz, London

    The debt will be, and with present policies, will remain, well above the safety threshold of around 60%. In the meantime it is going get a lot more expensive to maintain that debt, so we will have to sell assets stay afloat.

    The structure of Network Rail was put in place by the previous administration to facilitate its sale (and to use practices common in some EU countries to hide debt off of the books) , and now is a good time to look at its sale, something that was touched upon in the announcements about future capital investment in the UK.

  • Chris Neville-Smith, Durham, England

    "As things stand with the national finances,"

    Public sector debt as a percentage of GDP is forecast to fall after 2015-2016. What's the long-term problem?

  • Lutz, London

    I would expect that the business, possibly along with the ORR, are candidates for full privatisation give the nature of the operations and assets, with Investment Funds, Insurance, a overseas businesses being the most likely investors. As things stand with the national finances,we can not hold the business on the books in the long-term.

  • Tony Pearce, Reading

    The Railways were privatised as 'Railtrack' on basically mis-information by the Government. The railways were just rusting away with little investment over the last 20 years. There were numerous speed restrictions. The track was in a lousy condition. Track layouts were being singled whenever a problem arose that needed investment. The accidents that happened after Privatisation were caused by what happened in the decade before Railtrack not after it. I presume that the Labour Government were not going to use huge amounts of Public Money to put the railways right but at the same time to boost the Railtrack share price, - whch is why they invented Network Rail. Actually us Railtrack shareholders did get back around £2.50 for every share after re-nationalisation so we can't complain too much.

  • Melvyn Windebank, Canvey Island, Essex

    Sue , Investors in South Sea Bubble come first !

    Private enterprise is all a gamble and you lost !

    There has been talk of Highways Agency being put on the same footing as Network Rail so perhaps this move is related to that?

    Of course the obligation Network Rail has to invest any profits in the network means that unless we got a perfect railway that cost less to maintain than Network Rail income then its debts can only mount!

  • Paul, London

    Sue, Railtrack shares collapsed after Hatfield and became in effect junk status with no buyers. That's the risk you take when you buy shares. Accept it.

  • Sue Long, Barnsley

    If they're re-nationalising please can staff & retireds have our share money back which was stolen from us when you reckoned we were bankrupt? Thank you

    (This appears to be a sticky point. The simple fact is that Network Rail will be a government agency in the public sector from September, and the Oxford English Dictionary defines nationalisation as 'government ownership'. The DfT does not agree, however, that this is nationalisation, although it has not yet explained what the difference might be.--Editor)

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