1st September 2014 -NR nationalised

[21C101]

1 week to go before Network Rail is nationalised. My guess is that immediate plans won't be affected barring a serious economic crash.

However with their spending now counting towards the national debt, and therefore impacting on general government borrowing rates and credit rating agency scores, from control period six onwards I can see massive treasury pressure to prune capital investment costs down. Will we see the return of things like single lead junctions and odd bits of singling like Moreton to Dorchester?

 

[bunnahabhain]

I've no idea, but I certainly hope it leads to a reprieve for some signalboxes on rural lines that wouldn't really benefit from a massive upgrade, like the Skegness branch.

 

[AngusH]

The following is only my personal thought on this, I claim no inside knowledge or expertise.

In the worst case capital expenditure is something a politician can take credit for, so large high profile schemes will continue as long as any money is available at all.

The small progressive schemes and renewals of equipment which are desirable to improve reliability but not actually safety critical might get cutbacks. Especially if the request is "reduce spending, but not on anything that may cause adverse publicity"

Safety critical repairs and renewals will continue, the embarrassment of being the minister who cut spending and was later found to the cause of an accident would be too much for any politician. Plus the engineering managers would probably resign in protest before anything got really bad, which again would cause embarrassment for the minister.

It will probably come down to how much control the government is actually able to exert. Possibly no more than now, possibly much more?

It may be though, that the government will see the need for investment + ongoing operations and keep spending on rail.



Edit: It just occurred to me that this may be entirely wrong, given that Network Rail has strong contracts with operators and other parties, so it may not actually be able to reduce spending much anyway, except on improvements and new projects

 

[HH]

According to experts at ORR who I spoke to on this a few weeks ago, it will make no difference whatsoever. It's just an accounting treatment.

 

[WatcherZero]

There have been some changes, the Government is increasing its political control and taking a place on the board as well as altering the way its run. In the short term there wont be any change but in the long term there is likely to be an increased political interference such as schemes in marginal seats and which benefit the party in power having higher priority.

Financing likely wont change, weve just had the longest recovery in recorded history with a greater degree of austerity than even Thatcher proposed and still spending rose, primarily infrastructure investment in recession is a Keynesian strategy to end the recession and it generates positive headlines of the government doing something.

 

[21C101]

Financing likely wont change, weve just had the longest recovery in recorded history with a greater degree of austerity than even Thatcher proposed and still spending rose, primarily infrastructure investment in recession is a Keynesian strategy to end the recession and it generates positive headlines of the government doing something.

In the short term, I'm sure you are right but the national debt is still going up at £100bn per year+ , the austerity we have is largely illusory and we have borrowed heavily from future revenues by doubling the national debt. It stands at approx £1400 billion. When Thatcher left office in 1990 it stood at £150 billion. If it had risen with inflation it would be £297 billion.

In future years the interest on that debt is going to figure more and more in budget calculations, especially as the extraordinary interest rates today will not last in the medium to long term. In such a situation scrutiny of future borrowing will increase more and more in the coming years. To put it in perspective, interest on UK local and central government debt in 2014-15 is £52 billion, that is more than twice the entire transport budget, more than the defence budget and over a third of the NHS budget and it will rise significantly in future years.

Yes, I'm sure new infrastructure will still be a priority, my concern is that in the long term ways of reducing the cost of that infrastructure will be sought by the treasury such as line singlings when renewals are due and single lead junctions etc. and possibly, whisper it quietly bustitution and closures.

I can remember the hoops that BR had to jump through to get transport ministers to sign off their investment plans. For example the price of Tonbridge - Hastings electrification was Tunbridge Wells - Eridge closing.

 

[LNW-GW Joint]

1 week to go before Network Rail is nationalised. My guess is that immediate plans won't be affected barring a serious economic crash.

It will be no more nationalised next week than it is this.
It is still already 100% a creature of Government, managed at arm's length.
The way it is financed (5-year control periods, regulated by ORR) won't change.
The current cycle (CP5, 2014-19) is pretty much set in concrete.
Plans for the next cycle (HLOS/SoFA due to be published in 2017) will happen unless there is new legislation (which will be under a new government, colour unknown).
We shall see...

 

[AngusH]

According to experts at ORR who I spoke to on this a few weeks ago, it will make no difference whatsoever. It's just an accounting treatment.

Sounds pretty definitive

Good to know.

 

[21C101]

According to experts at ORR who I spoke to on this a few weeks ago, it will make no difference whatsoever. It's just an accounting treatment.

I'm sure they think that (bet the Treasury don't though), and it would be difficult to unpick CP5 - which will put the government off unless there was a severe econimic downturn.

However, I think it is naive to think that things won't change after CP6 starts in 2019, by which time the country will be paying the thick end of £100 billion in interest on the national debt. The first signs of change will come after the election and in particularly a year or two after it when negotiations on CP6 start (if indeed the next government continues the current funding procedures and there is a CP6)

 

[NotATrainspott]

I cannot see this making the slightest of difference to NR's plans for the future. On the back of its enormous debt the savings of singling, low-cost renewals and small line closures won't make the slightest difference. Investment in rail infrastructure is one of the least bad ways for the government to stimulate sustainable economic growth and add aggregate demand, especially when it then has such a strong enabler effect (where that money spent by the government unlocks economic growth from entirely private enterprise). Without that aggregate demand there would never be a real recovery, so thinking of it in pure terms of how much NR is costing is silly. The Germans have currently got real problems in that their insistence on balancing the books has resulted in economic turmoil across the Eurozone, so it is more than likely that they will have to heavily invest in the same sort of infrastructure.

 

[Railsigns]

Will we see the return of things like single lead junctions and odd bits of singling like Moreton to Dorchester?

I consider it wrong to think of single lead junctions as a sign of cost cutting. Often comprising more point ends than the layouts they replaced, they improve the track geometry over the diverging route, allowing for higher speeds, whilst keeping within the existing railway boundary.

As long as trains on and off the branch aren't expected to pass the junction at the same time (through sensible timetabling) then there's no penalty, and getting them through the junction quicker benefits capacity on the main line.

Parallel lead junctions give the best of both worlds, but may require land-take when replacing a conventional double junction or a single lead junction.

 

[HH]

I'm sure they think that (bet the Treasury don't though), and it would be difficult to unpick CP5 - which will put the government off unless there was a severe econimic downturn.

However, I think it is naive to think that things won't change after CP6 starts in 2019, by which time the country will be paying the thick end of £100 billion in interest on the national debt. The first signs of change will come after the election and in particularly a year or two after it when negotiations on CP6 start (if indeed the next government continues the current funding procedures and there is a CP6)

That would happen whether or not the NR debt was theoretically at arm's length or not. The money they get comes from DfT, which, last I looked, is part of government.

 

[21C101]

That would happen whether or not the NR debt was theoretically at arm's length or not. The money they get comes from DfT, which, last I looked, is part of government.

Grant money does come from the government, but that is not the issue here.

The issue is the money that NR borrows on the famous NR "Credit Card", this £30 billion is now to be (correctly) added to the national debt rather than hidden. As of 1st September the "credit card" is chopped up and replaced with public sector borrowing.

Hence further borrowing by NR will directly impact the national debt, which in turn inpacts the interest rate the government issues bonds at and the credit ratings the government has with international credit rating agencies.

Network Rails debts alone will increase the national debt by 2%, therefore it is not fanciful to suggest that the government, led by the treasury, might make NR jump through far more hoops to borrow further once CP5 ends.

Historically any government under pressure to reduce borrowing went for transport rather than impact the more politically sensitive schools and health budgets.

This railnews article explains

http://www.railnews.co.uk/news/2013/12/09-network-rail-debt-is-set.html

As the article states, the government has promised not to interfere in CP5, however come CP6 in 2019 there is no such guarantee (nor could there be as no government can bind the future government which will negiotiate CP6 or whatever they replace control periods with.

 

[WatcherZero]

On the other hand as the borrowing is no longer commercial it no longer has to justify its ability to repay the debt against the Regulatory Asset Base as a commercial rate returning investment. i.e. it no longer has to demonstrate to the financial markets that on paper at least its making a financial rather than social profit on its investment.

 

[LateThanNever]

Grant money does come from the government, but that is not the issue here.

The issue is the money that NR borrows on the famous NR "Credit Card", this £30 billion is now to be (correctly) added to the national debt rather than hidden. As of 1st September the "credit card" is chopped up and replaced with public sector borrowing.

Hence further borrowing by NR will directly impact the national debt, which in turn inpacts the interest rate the government issues bonds at and the credit ratings the government has with international credit rating agencies.

Network Rails debts alone will increase the national debt by 2%, therefore it is not fanciful to suggest that the government, led by the treasury, might make NR jump through far more hoops to borrow further once CP5 ends.

Historically any government under pressure to reduce borrowing went for transport rather than impact the more politically sensitive schools and health budgets.

This railnews article explains

http://www.railnews.co.uk/news/2013/12/09-network-rail-debt-is-set.html

As the article states, the government has promised not to interfere in CP5, however come CP6 in 2019 there is no such guarantee (nor could there be as no government can bind the future government which will negiotiate CP6 or whatever they replace control periods with.

Whilst this is all true, as the government still continues printing money (AKA Quantitive Easing), which always used to be thought of as economic suicide, perhaps none of the old parameters apply any more? China is probably the major investment economy of the world and they have to invest their 'profits' somewhere, so shouldn't we just be saying that the way the 'capitalist' system works has been recently revised? And keep printing the money....

 

[HH]

Exactly. Whether the money is "on the books" or "off the books" the interest still has to be paid. The methods of paying for it are still the same; it's just upfront now, rather than hidden a bit.

There's no real substantive difference. Now it might be argued that there is a political one, but I don't really accept that. If the government wants to spend the money then they'll find a way to spin it (witness HS2); if they don't, well they'll find a way to spin that. The change is a big, fat, red herring.

 

[Darren R]

Whilst this is all true, as the government still continues printing money (AKA Quantitive Easing)...

Quantitative easing is done by the independent (on such matters, at least) Bank of England, not the Government - and moreover it hasn't happened since mid-2012. In any case, it was used to buy UK Government Bonds (Gilts) and to a lesser extent private sector assets. It has no (immediate) bearing on Network Rail specifically or the railway more generally.

 

[jon0844]

If you believe some stories, China is going on a huge spending spree in view of the fact that it believes its assets (like gold at the Federal Reserve) has been depleted, thus being happy to buy businesses, invest in new projects and spend spend spend so it has something to show for its wealth.

And we obviously love the investment.

 

[HH]

Quantitative easing is done by the independent (on such matters, at least) Bank of England, not the Government - and moreover it hasn't happened since mid-2012. In any case, it was used to buy UK Government Bonds (Gilts) and to a lesser extent private sector assets. It has no (immediate) bearing on Network Rail specifically or the railway more generally.

This is a tad naive. Who appoints the governor of the Bank of England?

 

[Abpj17]

This is a tad naive. Who appoints the governor of the Bank of England?

Technically, it's the Queen (on advice from the PM who no doubt takes advice from the Chancellor). You would need to look at grounds for removal (rather than appointment) and the likely future employment to actually consider when it was a role that could be influenced.

 

[HH]

Technically, it's the Queen (on advice from the PM who no doubt takes advice from the Chancellor). You would need to look at grounds for removal (rather than appointment) and the likely future employment to actually consider when it was a role that could be influenced.

No, you only need to look at the governor's actions and see whether they align with what the government wishes...

 

[DaveHarries]

I've no idea, but I certainly hope it leads to a reprieve for some signalboxes on rural lines that wouldn't really benefit from a massive upgrade, like the Skegness branch.

My understanding is that the boxes on the Ulceby - Barton-upon-Humber route have been spared: I had heard that on a forum but during the course of my recent Lincolnshire road trip I spoke to a woman as she came off-duty from Goxhill and she said she understood likewise. I would be surprised if New Holland stays though as when I was there recently it looked like it needed shoring up.

Dave

 

[Olaf]

1 week to go before Network Rail is nationalised. My guess is that immediate plans won't be affected barring a serious economic crash.

However with their spending now counting towards the national debt, and therefore impacting on general government borrowing rates and credit rating agency scores, from control period six onwards I can see massive treasury pressure to prune capital investment costs down. Will we see the return of things like single lead junctions and odd bits of singling like Moreton to Dorchester?

What is likely to happen is that the number of schemes on the existing system will be cut-back so that the rate of spend is reduced.

It's not just the status ownership status of NR that is the problem but growing alarm that Government revenue is not sufficient for current expenditure, and that the next wave of the financial crisis could be triggered by any number of issues.