Network Rail's increasing debts

[cjp]

Network Rail runs the infra structure on which trains travel and is not the government but it does seem to have a government's mindset when it comes to runningat a loss with increasing debt.
Is it not time fares reflected more of the costs and people realised the real cost of the railways?

funding crisis as the industry regulator predicts that Network Rail will amass debts approaching £50bn by the end of the decade.

In a report issued on Monday , the Office of Rail Regulation (ORR) says Network Rail's interest payments will consume a third of its budget by 2029. The watchdog calls for more transparency on rail funding so that the public can understand the true costs.

Alongside direct government funding of around £3.7bn a year, investment in the railways is being paid for by borrowing underwritten by the state. Network Rail's net debt increased by £3.1bn in 2012-13, when it paid out £1.4bn in interest. According to the ORR's projections, by 2020 its debt will have jumped from around £20bn to almost £50bn.

Repayment is guaranteed by the government, meaning Network Rail has been able to borrow on the same credit rating as the state. But the ORR says its ability to service its debt and to raise additional finance will depend on future direct government support and creditors' confidence. It adds: "The burden on future generations to pay for the costs of historic investment will continue to rise as Network Rail's debt grows."

Source a report in Monday's Guardian http://www.guardian.co.uk/business/2013/jul/15/network-rail-debts-watchdog?INTCMP=ILCNETTXT3487on an ORR report

 

[tom1649]

Is it not time fares reflected more of the costs and people realised the real cost of the railways?

That depends on whether you view the railways as a public service or not really doesn't it? If it means 'Commuter A' who can't afford a car and travels by train to their job can no longer afford to do so, then no I don't think it's right. A proportion of fares already goes to the shareholder and if anything this amount should be redirected into infrastructure rather than private individuals' pockets... That is if we want the railways to remain mostly accessible to all rather than a privileged few. Others maybe feel that social exclusion in this manner might be good thing in keeping the 'riffraff' off our railway.

 

[ainsworth74]

Is it not time fares reflected more of the costs and people realised the real cost of the railways?

Fares are already (or might have already moved) moving towards a 75 - 25 split with the Government stumping up the 25%. So I'm not sure how much further you want to go? 80%? 90%?

 

[starrymarkb]

Also aren't most TOCs currently running at a loss, hence no shareholder payments?

Plus when it's 2-3% profit for the TOC/owning group, a lot of that will be reinvested rather then going to shareholders

 

[tom1649]

Also aren't most TOCs currently running at a loss, hence no shareholder payments?

Plus when it's 2-3% profit for the TOC/owning group, a lot of that will be reinvested rather then going to shareholders

Well what's the point in private companies running them then if there's nothing in it for the shareholders? A private public service always seemed like a contradiction in terms.

 

[HSTEd]

Network Rail picks up huge debts so that the TOCs can make a profit and give huge amounts of money to private shareholders.
This is why a certain convicted VAT fraudster can claim the TOC he runs makes a profit and net-pays money to the taxpayer when it is in-fact one of the greatest subsidy junkie of all.

 

[SussexSpotter]

One thing you have to remember with Network Rail is they inherited a lot debt from Railtrack and their liabilities. So a lot of debt they have is not necessarily of their own making.....

As and when interest rates rise though (and they are at an all time low at the moment), servicing the debt will become a real challenge I reckon....if their debts jump to £50bn I think they could be in for a rough ride.....

 

[LNW-GW Joint]

Network Rail runs the infra structure on which trains travel and is not the government but it does seem to have a government's mindset when it comes to runningat a loss with increasing debt.
Is it not time fares reflected more of the costs and people realised the real cost of the railways?

Source a report in Monday's Guardian http://www.guardian.co.uk/business/2013/jul/15/network-rail-debts-watchdog?INTCMP=ILCNETTXT3487on an ORR report

This is not new, it's all covered in the ORR PR13 (CP5) draft determination: http://www.rail-reg.gov.uk/pr13/PDF/pr13-draft-determination.pdf
which was published on 12 June and has been discussed on here (but I can't find the link).

Various audit bodies keep picking up the entrails and reporting the funding problem as though it was new.
It is in fact the government's (both sorts) preferred funding model, as it keeps railway costs off the government's books.
It was all started by Stephen Byers and Gordon Brown when Railtrack collapsed.
Trust Maria Eagle and Bob Crow to start waving the "cutting corners" and safety bogeys.
It's called "maxing out NR's credit card", and is the cheapest way of funding NR and all the upgrades coming in CP5.
Should we just not have IEP/electrification/Thameslink/Crossrail then?

 

[starrymarkb]

Well what's the point in private companies running them then if there's nothing in it for the shareholders? A private public service always seemed like a contradiction in terms.

The shareholders will probably get 0.5% or similar. In fact it's sensible to reinvest so the business grows and increases dividends that way, look at the fortunes of Stagecoach (smaller dividend percentage but continuously investing to grow the business and quite successfully) and First (large dividends, darlings of the city, but lack of investment has got them into bad situation, hence share issues and firesales*)

*Take North Devon, First had run it down even before Stagecoach arrived in town with a fleet of new Darts, Solos, Versas and cascaded Tridents that were still newer then anything in the First fleet, First pulled out.

 

[SussexSpotter]

Trust Maria Eagle and Bob Crow to start waving the "cutting corners" and safety bogeys.

No doubt Mr Crow will have more and more to say on this as the debt goes up......:roll:

 

[daccer]

It is always an interesting discussion when NR's finances are scrutinised. The whole issue really surrounds NR's status as private company operating under a Government guarantee. I am not sure but this might be a unique position (maybe others can confirm if this is true). This does keep the debt off the Govt books but allows NR to raise money as if a private entity (bonds etc).

The other issue to consider is that to justify the increased lending NR has to ensue the value of their assets continues to increase to enable gearing to be maintained and in theory to ensure the company does remain solvent. This kind of half private/half public system does reflect the UK's mixed feelings on whether the railways are a service or a business and to be honest is probably the best solution until we do work out what role we want our railways to fill.

I actually quiet like NR's structure and it is working as huge levels of investment are being secured. If it was nationalised and the 'hidden' subsidy of the borrowing suddenly became direct Govt funding it would be cut in these days of austerity. The current scenario allows the funding to be maintained with the Govt having some deniability as it is in theory NR's problem . It is smoke and mirrors and if NR ever defaulted the Govt would pick up the tab but does it really matter? The Govt would be picking it up anyway if they were funding all these improvements.

 

[route:oxford]

Network Rail picks up huge debts so that the TOCs can make a profit and give huge amounts of money to private shareholders.
This is why a certain convicted VAT fraudster can claim the TOC he runs makes a profit and net-pays money to the taxpayer when it is in-fact one of the greatest subsidy junkie of all.

Why be so coy?

If someone is a convicted VAT fraudster, their details are already in the public domain.

Name them.

 

[Monty]

Why be so coy?

If someone is a convicted VAT fraudster, their details are already in the public domain.

Name them.

x2

I'm rather interested to know who this individual is too.

 

[yorkie]

He's referring to Richard Branson, and the incident in question was before most of us were born.

 

[DynamicSpirit]

Is it not time fares reflected more of the costs and people realised the real cost of the railways?

'Real cost' is not nearly as simple as looking at a raw financial balance sheet. Railways give many benefits to the country that are not included in Network Rail's balance sheets: The obvious one is enabling economic activity - for example by allowing people to get to work. They also allow people to be productive while travelling - you can read or work on your laptop. On the other hand they also cause various forms of pollution, that is also not included in their costs.

I would hazard a good guess that if you tried to work out the 'real cost' to the country of the railways, taking all factors into account, you'd find it's far less than the 'real benefits' of them.

 

[Xenophon PCDGS]

Trust Maria Eagle and Bob Crow to start waving the "cutting corners" and safety bogeys.

The day that I begin to give serious consideration to what Maria Eagle says with regard to transport matters will be the day when Oldham Athletic will be the winners of the Champions League....hock:

At least Bob Crow and his statements are good for a laugh.

 

[thelem]

It's called "maxing out NR's credit card", and is the cheapest way of funding NR and all the upgrades coming in CP5.
Should we just not have IEP/electrification/Thameslink/Crossrail then?

If we can't afford to pay for them then we shouldn't be enhancing the network with Thameslink/Crossrail, just like you shouldn't get a new credit card to buy a big new TV.
IEP could be classed as maintenance, so it would be difficult to cancel, but could perhaps be delayed or cheaper options considered.
Electrification is the only thing that is worth borrowing for, because it cuts costs so by the time you've paid the loan back you should still be better off.

 

[cjp]

That depends on whether you view the railways as a public service or not really doesn't it? If it means 'Commuter A' who can't afford a car and travels by train to their job can no longer afford to do so, then no I don't think it's right. A proportion of fares already goes to the shareholder and if anything this amount should be redirected into infrastructure rather than private individuals' pockets... That is if we want the railways to remain mostly accessible to all rather than a privileged few. Others maybe feel that social exclusion in this manner might be good thing in keeping the 'riffraff' off our railway.

The point I was trying to put across was that the real cost of the railways is be obfuscated - deliberately hidden - for political reasons.

If a commuter cannot afford to travel to work by "public" transport one has to ask why.

Are they living too far away from their place of employment ? What are the circumstances that led to that. (Lack of local work / seeking a better living environment?)
Is the employer attempting to pay too little - are you and I helping the employer by subsidising their wage bill through subsidies to the railways. (are there no closer people who could do the job?)

And then there is the glossed over pretence that the cost to the people is the price of travel is their ticket plus subsidy to TOC.

Stand back, look at the wider (dishonest and dellusionary) picture.
"The camera never lies" but ye olde photo shoppee does???
Cloud cuckoo land and it will end in tears.
--- old post above --- --- new post below ---

Fares are already (or might have already moved) moving towards a 75 - 25 split with the Government stumping up the 25%. So I'm not sure how much further you want to go? 80%? 90%?

I set no figure for fares increases.

I sought honesty in the costs - which might lead to the conclusion that fare increases are required.
Potential fare increases might be reduced by removing the profit element required by Capitalism- share holders in a Private TOC - and returning it to investment in the infrastructure (Network Rail's increasing debt)
--- old post above --- --- new post below ---

One thing you have to remember with Network Rail is they inherited a lot debt from Railtrack and their liabilities. So a lot of debt they have is not necessarily of their own making.....

As and when interest rates rise though (and they are at an all time low at the moment), servicing the debt will become a real challenge I reckon....if their debts jump to £50bn I think they could be in for a rough ride.....

I think you need to recall that Railtrack and the government played the same game as NetworkRail and the government at keeping debts off thePublic Balance sheet only worse as they had a poorer maintenance record so as to generate profits.
The fat cats at NetworkRail can and do award themselves large remuneration packages as they are answerable to neither government nor shareholders:cry: They do not charge TOC the true cost of using the infrastructure so . . .

Up goes the debt.
--- old post above --- --- new post below ---

It's called "maxing out NR's credit card", and is the cheapest way of funding NR and all the upgrades coming in CP5.
Should we just not have IEP/electrification/Thameslink/Crossrail then?

NetworkRail cannot borrow cheaper than the Government.

My point remains that what is being done is both obscuring the real cost of railways - which I have no issue with just the deceitful way it is done - and playing politics

 

[yorksrob]

Speaking with my cynical side, perhaps there is some good that the true cost of the railway is hidden to an extent.

Bearing in mind, the works need to be done, and if the debt can't be repaid it falls to the Government to bail out. If this happens though, the investment will already have been made, and I have my doubts whether the Government would have made the necessary investment in the full glare of publicity.

 

[Xenophon PCDGS]

When all these Network Rail debt figures are discussed, let us keep matters to a discussion level that draws comparison to size of the National Debt and the fiscal methods used to deal with this, both being Government problems.

 

[cjp]

When all these Network Rail debt figures are discussed, let us keep matters to a discussion level that draws comparison to size of the National Debt and the fiscal methods used to deal with this, both being Government problems.

But NetworkRail's debt is a way that the government is dealing with the National Debt - it is not a debt to be compared with.
The National Debt ought to include NetworkRail's debts and would if the was this "sham" method of keeping £30bn debt off the government's books and publicity being given only to TOC subsidies was ended.

The private TOCs could be bought back into private ownership as franchises end but the politics of taking profits from fat cats and their shareholders and giving it back to the people mean it is unlikely to happen.

Next to be sold off . . . .Royal Mail.

And so it goes:cry:

 

[SS4]

The private TOCs could be bought back into private ownership as franchises end but the politics of taking profits from fat cats and their shareholders and giving it back to the people mean it is unlikely to happen.

Next to be sold off . . . .Royal Mail.

And so it goes:cry:

Wouldn't surprise me if it was done so an ex-cabinet minister could get a "consulting" job which entails getting paid a lot of money to do very little.

 

[cjp]

The day that I begin to give serious consideration to what Maria Eagle says with regard to transport matters will be the day when Oldham Athletic will be the winners of the Champions League....hock:

At least Bob Crow and his statements are good for a laugh.

Bob Crow I know of in connection with railways but what is Maria Eagle's connection - looking quickly this is what I found:cry:
http://www.telegraph.co.uk/news/newstopics/mps-expenses/5336468/Maria-Eagle-bathroom-renovated-on-expenses-before-flat-was-flipped.html

 

[LNW-GW Joint]

Bob Crow I know of in connection with railways but what is Maria Eagle's connection - looking quickly this is what I found:cry:
http://www.telegraph.co.uk/news/newstopics/mps-expenses/5336468/Maria-Eagle-bathroom-renovated-on-expenses-before-flat-was-flipped.html

If Labour were in power she would probably be Transport Secretary.
She is the current shadow.

 

[Tiny Tim]

Network Rail's peculiar borrowing practices may be for political reasons (i.e. keeping it off the government's books) but it's hardly devious as it's a matter of public record. I would doubt any change in NR's funding is going to happen soon, but eventually their debts will exceed their ability to service them and the government will be obliged to intervene. The beauty of this for the present government is that it won't be their problem! Of course, it's a shortsighted, expensive way to fund the railways, but, for the time being, it's what we've got.

 

[SussexSpotter]

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