Tories to investigate 'bizarre' decision on rail group
The Times: January 09, 2006
By Gabriel Rozenberg, Economics Reporter
The Office for National Statistics upheld a ruling that allowed Gordon Brown once more to keep his £21 billion loan guarantees to the rail operator off the national balance sheet
THE Conservatives have launched an investigation into how the Office for National Statistics reached a "bizarre and illogical" decision to continue to keep Network Rail's debts off the Government's books.
The move comes after The Times revealed that the ONS had upheld a ruling that allowed Gordon Brown once more to keep his £21 billion loan guarantees to the rail operator off the national balance sheet.
Chris Grayling, the Shadow Transport Secretary, today will table a series of parliamentary questions to clarify the relationship between the Government and Network Rail.
The ONS ruled that despite a transfer of responsibilities last year from the Strategic Rail Authority to the Department for Transport, Network Rail remains a private-sector company whose debts do not show up on the Treasury accounts.
The Conservatives say that the Treasury's loan guarantees to Network Rail make it a creature of government in all but name. However, the ONS maintains that "control of general corporate policy" rests with the company's directors and members, most of whom are from the private sector.
The Government will be asked how closely it oversees the work of Network Rail and how much it can, in practice, define the company's activity.
Conservatives also want to know if the Government believes that it could ever reduce its involvement with Network Rail without causing the company to collapse.
Mr Grayling said that he was seeking "to build a clear understanding of what the Government has told the ONS about its relationship with Network Rail, so that we can be certain it has presented the ONS with the full facts".
He said that his party was investigating how the ONS's discussions with the Treasury and the Department for Transport "could possibly have led to a decision that we think is bizarre and illogical".
Mr Grayling added: "By any stretch of the imagination, Network Rail is utterly financially dependent on the Government. It's inconceivable that in the private sector a company with debts of close to £20 billion and turnover of less than £5 billion could remain solvent."
The unusual status of Network Rail has also been highlighted by the National Audit Office (NAO). The spending watchdog announced that, despite the ONS ruling, it would continue to treat Network Rail as part of the Government in the annual departmental accounts. A spokesman for the NAO said that, after the abolition of the Strategic Rail Authority, Network Rail would be classified as a direct subsidiary of the Department for Transport in its accounts.
The ONS decision related to the statistical classification of Network Rail, he said, but did not affect how the company should be treated for accounting purposes.
A Treasury spokesman said: "The decision for classification is up to the ONS. We provide them with whatever information they require in order to make those decisions in a fully informed way."
The ONS said: "As far as we are concerned, we asked for and received all the relevant information."
Leading article
The Times: January 09, 2006
On the wrong track
The Government's attempt to shrug off the railways' debt lacks honesty
The questions to Gordon Brown to be tabled today by Chris Grayling, the new Shadow Transport Secretary, have the forensic quality of an investigator who has discovered a cover-up and is determined to uncover the truth. The cover-up is the Treasury's determination to classify Network Rail's debts as falling in the private sector and therefore excluded from the national balance sheets. Network Rail is not a wholly independent company, and, for accounting purposes, should not be regarded as such.
For months this obfuscation has hidden the huge hole Network Rail punches in the Treasury's self-imposed borrowing limits. The company has debts of £17 billion - a vast sum. The Treasury insists that Network Rail is not nationalised, even though it abolished the Strategic Rail Authority last year to give the Department for Transport more control. The Government was frustrated at having to fork out large sums to support the railways without having a direct role in running them. Nationalisation is a taboo word in new Labour's lexicon; but it is hard to see how Network Rail is anything other than a state-controlled body. It may call itself a "not-for-profit company", nominally reporting to 120 members representing the rail industry and public interests, but in reality it cannot ignore directives from the Department for Transport. Moreover, the Government would never allow it to default.
Does it matter whether the organisation is classified as public or private? In terms of Network Rail's operation, the answer must be no - except that the limbo status makes the company formally, and dangerously, accountable neither to shareholders nor to the Government. What does matter is the Treasury's credibility. Rail debts take borrowing close to the 40 per cent of gross domestic product set by the Chancellor's Sustainable Investment Rule, and set an unrealistic precedent for other public-private partnerships.
Mr Grayling's questions lay bare the contradictions. What are the arrangements to guarantee Network Rail's debts? What contingency plans exist were it to become insolvent? What right does the Government have to define its future activity? A truthful answer to the first two would make it impossible to pretend, in answer to the third, that the organisation is an enntirely independent business. The Department for Transport should, as Mr Grayling demands, make public its submission to Office for National Statistics.
The National Audit Office has continued to express grave doubts about the Treasury's attitude. It has described the absence of Network Rail from the national accounts as a "fudging" of the figures. The Government should admit that the rules have been fudged and that Network Rail answers to the state. Today, as travellers grimly contemplate the newly published timetable for rail strikes and the shut-downs on the London Underground network, the priority must be to improve the transport system and to make transparent the costs of that improvement.