Network Rail debt.

[geoffk]

Today I skimmed through Roger Ford's "Informed Sources Preview", which was a bit hard going. What caught my eye was the statement that "interest payment on Network Rail’s debt....represents roughly a quarter of current fares revenue."

How much of this is due to high levels of investment in recent years and how much to NR being reclassified as a Government body in 2014, a change which evidently added £30bn to Britain's national debt?

 

[Bald Rick]

How much of this is due to high levels of investment in recent years and how much to NR being reclassified as a Government body in 2014, a change which evidently added £30bn to Britain's national debt?

None is due to reclassification. That just changed how the debt was accounted for, not the amount of it.

All of it is due to the gap between what Government has paid Network Rail (either directly, or via the TOCs) and what NR has spent in accordance with its spending plans Approved by Government and the ORR.

 

[HSTEd]

How much of this is due to high levels of investment in recent years and how much to NR being reclassified as a Government body in 2014, a change which evidently added £30bn to Britain's national debt?

It's primarily a result of the Government trying to conceal subsidies to the TOCs as borrowing by Network Rail, thus allowing them to pretend that train operating companies were "commercial businesses making money for the taxpayer".

 

[Mcr Warrior]

Today I skimmed through Roger Ford's "Informed Sources Preview", which was a bit hard going. What caught my eye was the statement that "interest payment on Network Rail’s debt....represents roughly a quarter of current fares revenue."

Presume the above relates to the latest 2022/23 accounts.

Looking at Network Rail Limited's previous Annual report and accounts, for the year to 31MAR2022, I see them as having had finance costs of £2.8bln on total revenue of £9.5bln.

Revenue for 2021/22, consisted mainly of Grant income (£6.5bln) (drawn down to meet their in-year operations, maintenance and renewals expenses) supllemented by track access charges (£2.8bln). Property rental income was just £177mln.

Not sure what the reference to "fares revenue" means, unless that's the track access charges. In the money-go-round that is the GB rail industry, surely 'Network Rail Limited' don't, directly at least, receive any fares revenue, as such?

 

[LNW-GW Joint]

If you read Roger's article, I think about half of the £55 billion NR debt came from before reclassification in 2014, and half since.
BR had similar problems before HMG wrote off its debts in 1968 (Barbara Castle's Railway Act), and 1996 (at privatisation).
Of course at privatisation, the the write-off was partly compensated by the proceeds of the sale of parts of the railway (rolling stock etc).
The difference today is that there's no sign of a white knight emerging to erase the railway's debt, which will probably pass to "GBR".
I remember Philip Hammond, then Chancellor, saying he was "entirely indifferent" as to whether NR's debt was on the government's books or not.
I doubt the current Chancellor would agree.

 

[Magdalia]

Network Rail finances are impacted by inflation because a lot of its debt interest payments are index linked.

Note 17 of the 2022-23 accounts lists the bonds issued under the Debt Issuance Programme, about £27bn mostly index linked.

2023 Group £m 2022 Group £m 2023 Company £m 2022 Company £m

1.085% sterling index linked bond due 2052 175 154 - -

0% sterling index linked bond due 2052 195 171 - -

1.003% sterling index linked bond due 2051 33 29 - -

0.53% sterling index linked bond due 2051 169 149 - -

0.517% sterling index linked bond due 2051 169 149 - -

0% sterling index linked bond due 2051 196 172 - -

0.678% sterling index linked bond due 2048 166 146 - -

1.125% sterling index linked bond due 2047 7,127 6,317 - -

0% sterling index linked bond due 2047 127 111 - -

1.1335% sterling index linked bond due 2045 68 60 - -

1.5646% sterling index linked bond due 2044 366 325 - -

1.1565% sterling index linked bond due 2043 76 67 - -

1.1795% sterling index linked bond due 2041 93 82 - -

1.2219% sterling index linked bond due 2040 358 319 - -

1.2025% sterling index linked bond due 2039 102 90 - -

4.6535% sterling bond due 2038 100 100 - -

1.375% sterling index linked bond due 2037 7,050 6,230 - -

4.75% sterling bond due 2035 1,237 1,236 - -

1.6492% sterling index linked bond due 2035 544 485 - -

4.375% sterling bond due 2030 873 873 - -

1.75% sterling index linked bond due 2027 6,763 6,000 - -

4.615% Norwegian krone bond due 2026* 40 45 - -

4.57% Norwegian krone bond due 2026* 11 13 - -

1.9618% sterling index linked bond due 2025 462 411 - -

4.75% sterling bond due 2024 749 747 - -

3% sterling bond due 2023 400 399 - -

27,649 24,880 - - * Bonds treated as fair value through profit and loss. All other bonds are shown net of unamortised discount and fees.

Note 8 shows that debt interest on the bonds issued under the Debt Issuance Programme jumped from £2bn in 2022 to £3.3bn in 2023.

8. Finance costs

2023 Group £m 2022 Group £m

Interest on bank loans and overdrafts 68 26

Interest on loan issued by Department for Transport 640 611

Interest on bonds issued under the Debt Issuance Programme 3,318 1,987

Interest on derivative instruments 99 149

Defined benefit pension interest cost (see note 24) 60 60

Lease interest payable (see note 22) 13 11

Total finance costs 4,198 2,844

An increase of £1,379m accretion on index linked bonds has driven the increase on Interest on bonds issued under the Debt Issuance Programme

Apologies the tabulation goes a bit wonky when quoted!

 

[thedbdiboy]

It's primarily a result of the Government trying to conceal subsidies to the TOCs as borrowing by Network Rail, thus allowing them to pretend that train operating companies were "commercial businesses making money for the taxpayer".

Which ironically has done little to quell the notion that the industry's pay disputes and other investment shortfalls can be solved simply by sharing these 'profits' hoarded by evil plutocrats cackling over chests of treasure. Would that it were so easy, but the industry is in a financial black hole.

 

[snowball]

Today I skimmed through Roger Ford's "Informed Sources Preview", which was a bit hard going.

Those who have a subscription may by now have received the magazine with the full article. Mine came on Tuesday. It is indeed hard going - I have a degree in maths but always have trouble with complex government financial arrangements. I've only dipped into it so far.

 

[SuspectUsual]

Simple question from a financial numbskull

If Network Rail’s investment in infrastructure shows as debt in their accounts, do the DfT show similar debt for investment in roads?

 

[HSTEd]

If Network Rail’s investment in infrastructure shows as debt in their accounts, do the DfT show similar debt for investment in roads?

No, because the DfT traditionally funds road construction either from taxation or from general government borrowing.

This whole mess was created as a ruse to keep railway subsidies off the general government balance sheet and to flatter TOC financial statistics.

 

[Magdalia]

Simple question from a financial numbskull

If Network Rail’s investment in infrastructure shows as debt in their accounts, do the DfT show similar debt for investment in roads?

Since 2015 National Highways has been an incorporated body and publishes annual accounts.

A balance sheet has two sides: the infrastructure (railways or roads) is on the asset side of the balance sheet, in the case of Network Rail the debts are on the liabilities side of the balance sheet. It is called a balance sheet because total assets have to equal total liabilities.

On the asset side nearly all of Network Rail's assets are property plant and equipment - the rail network. In the balance sheet this is valued at £83bn and there are more details in note 10 of the accounts. National Highways also has property plant and equipment on the asset side of its balance sheet. The valuation is about £157bn, but I have no idea whether the valuations are in any way comparable.

But on the liabilities side things are very different. Whereas Network Rail's liabilities include the debt issuance programme (£28bn) and a slightly bigger amount (£30bn) for borrowing issued by DfT. The latter I think is an adjusted amount from the 2014 reclassification referred to above, from my reading of note 17. National Highways liabilities are mostly shown as capital contributions and revaluation reserve. This follows from the very different funding (I'm not an accountant please don't ask me to explain!) of National Highways, but I think that the key line is this in note 8 of their accounts:

As the company generates minimal income, the DfT provides funds annually in the form of a cash contribution, on behalf of the Secretary of State for Transport as the sole shareholder of the company.

I think that's basically what has been said already here!

No, because the DfT traditionally funds road construction either from taxation or from general government borrowing.

The National Highways statement of cash flows shows about £4.5bn for year to March 2023:

Capital contribution from shareholder: current year 4,549,000

 

[geoffk]

Thanks for replies. Trying to understand the money-go-round is not easy if you're not an accountant.

 

[pdeaves]

Not sure what the reference to "fares revenue" means, unless that's the track access charges. In the money-go-round that is the GB rail industry, surely 'Network Rail Limited' don't, directly at least, receive any fares revenue, as such?

It means it's a convenient number to compare and give a sense of order of magnitude (like the size of Wales being used to measure land masses!)

 

[Mcr Warrior]

Today I skimmed through Roger Ford's "Informed Sources Preview", which was a bit hard going. What caught my eye was the statement that "interest payment on Network Rail’s debt....represents roughly a quarter of current fares revenue."

If you read Roger's article, I think about half of the £55 billion NR debt came from before reclassification in 2014, and half since.

Are either of you able to provide a link to the article, and/or a brief extract?

 

[LNW-GW Joint]

Well, it's 5 pages of analysis of NR's debt problem with tables and graphs (plus another 3 pages on the future CP7 budget).
I think the idea is that you buy a copy, or subscribe...

Modern Railways August 2023

The full issue in page-turning format

www.modernrailways.com

From Roger's tables (p28):
BR ended with £4.6B of debt (1993-94), prior to the separation of Railtrack.
Railtrack started with £0.8B (1996-97) and ended with £7.0B (2000-01).
NR inherited £11.6B from Railtrack (2003-04) and borrowed £24.8B when it could do so on the market (until 2013-14).
It has since borrowed £30.9B from DfT since re-classification (to 2021-22).
Current NR debt (2021-22) is £55.8B

 

[CAF397]

What are the asset values? Land and buildings, plus physical infrastructure?

 

[WatcherZero]

Anything owned which has tangible (physical) value, you can also have intangible assets which is a whole bag of worms and are listed separately on the balance sheet.

Also should be noted Deutsche Bahn has been teetering for the last couple of years as its sitting on a similar debt pile and successive German governments havent sorted it out, it may ultimately be broken up and parts sold off to try and lower its debt.