Lies, damn lies and accountancy - Network Rail, debt and deficit


The Government tried to put proceeds from Network Rail’s controversial sale of its commercial property portfolio towards cutting the Government’s fiscal deficit, despite assurances to the contrary – but failed to do so.

An accounting mix-up involving a transfer of staff eventually resulted in half a billion pounds spent by Network Rail being added to the deficit, it has emerged.


The disclosure comes in a report on the sale from the National Audit Office (NAO), which discloses that two-thirds of the £1.5bn raised from the sale was put towards cutting the (long-term) national debt.

The report also criticises Network Rail for doing too little to protect the interests of tenants when it sold the portfolio, most of which consists of property beneath railway arches. It said it was ‘of some concern that the impact on tenants was not an explicit sale objective and was only considered late in the sale process’.

Network Rail completed the sale of the portfolio in February 2019. Auditors said the sale price of £1.46bn exceeded its valuations while noting that it forgoes around £80m revenue per year.

The report discloses that one of four objectives for the sale was to ‘reduce government’s main fiscal measures, public sector net borrowing (PSNB; ‘the deficit’) and public sector net debt (PSND)’.

This contradicts what the Department for Transport (DfT) told Transport Network in May 2017. A spokesperson said: ‘Network Rail is continuing to sell assets to generate more funding for the Railway Upgrade Plan. These proceeds will not be used to pay off (sic) the deficit.’

It is not clear whether this statement was a reference to annual public sector net borrowing – known as ‘the deficit’ but unable to be ‘paid off’ – or long-term public sector net debt. However, given the disclosure that the cash was intended to be used for both, it was untrue.

In response to a request for an explanation for this, a DfT spokesperson said: ‘This sale ensures that Network Rail can continue to invest in improving our railways and that the diverse, independent businesses in rail arches can continue to thrive.’

Network Rail's firesale and bailout - how £2.5bn became £800m

The sale was part of a 2016 plan to contribute £1.8bn towards Network Rail funding black hole of £2.5bn for the 2014-19 Control Period (CP5) through the sale of non-essential assets. Network Rail was to borrow the remaining £700m from the Government.

It was reclassified as a public body in 2014, limiting its ability to borrow externally, and meaning that its borrowing and debt count against government targets.

The report states that in April 2017 the DfT revised Network Rail’s £1.8bn target from asset sales to £800m. The Treasury stipulated however that, to count towards reducing Network Rail’s funding shortfall, the sale would need to reduce the Government’s deficit.

‘This meant the structure of the sale would need to meet certain financial accounting and reporting requirements’ and be completed before the end of March 2019.

Lies, damn lies and accountancy - the £500m

However, under the agreement, Network Rail could use up to £500m from the property sale to pay for its CP5 projects, ‘regardless of the ultimate accounting treatment’. If the sale proceeds were ultimately not classified by the Office for National Statistics as reducing the national deficit, the Treasury would take on the ‘accounting risk’ of the transaction.

In the event, because the sale of the portfolio required the transfer of around 100 Network Rail staff to run the business, the accounting treatment of the proceeds meant that they did not count against the national deficit – but the spending added to it.

The report discloses: ‘The sale agreement includes a transfer of staff, and Network Rail and the Department only realised the impact of this transfer on the accounting treatment in March 2017. This feature means the sale proceeds will likely not reduce the deficit.’

However, as agreed, Network Rail was allowed to put the £500m towards its CP5 funding shortfall. ‘This will increase the deficit by £500m,’ the report states.

The Treasury did take nearly £1bn as a contribution towards the long-term national debt.

The report states: ‘The remaining proceeds were used to offset against expected borrowing from the Department, by reducing the loan facility available to Network Rail. The sale reduced public sector net debt (PSND) by £960m.’

The report points out that the £500m meant that Network Rail balanced its funding position for CP5.

It adds: ‘However, this also follows the cancellation of projects (such as electrification works), efficiency targets imposed in April 2017, and £1.8bn of additional grant and loan funding from the Department.'


Also see

Register now for full access

Register just once to get unrestricted, real-time coverage of the issues and challenges facing UK transport and highways engineers.

Full website content includes the latest news, exclusive commentary from leading industry figures and detailed topical analysis of the highways, transportation, environment and place-shaping sectors. Use the link below to register your details for full, free access.

Already a registered? Login

comments powered by Disqus
highways jobs

Project Engineer (Permanent)

Havant Borough Council
We’re looking for an experienced and enthusiastic engineer to join our well-regarded design and implementation team. Havant, Hampshire
Recuriter: Havant Borough Council

Project Engineer (Fixed Term)

Havant Borough Council
We’re looking for an experienced and enthusiastic engineer to join our well-regarded design and implementation team. Havant, Hampshire
Recuriter: Havant Borough Council

Contract Supervisor

London Borough of Richmond upon Thames and London Borough of Wandsworth
£31,013 - £36,486 depending on skills, knowledge and experience
The role of Contract Supervisor (Waste and Street Cleansing) will require you to support ambitious plans to provide services for residents Richmond upon Thames, London (Greater)
Recuriter: London Borough of Richmond upon Thames and London Borough of Wandsworth

Flood Risk Manager

Birmingham City Council
£43,662 - £54,574
The role requires the post holder to be the lead professional for the Authority’s Flood Risk Management and drainage function Birmingham, West Midlands
Recuriter: Birmingham City Council

Head of Highways & Transport

Lewisham London Borough Council
up to £72,705
As our lead expert on highways and transport, you will set the direction and lead on all transport related matters Lewisham, London (Greater)
Recuriter: Lewisham London Borough Council

Ugobus Driver (multiple positions)

Essex County Council
Up to £18938.0 per annum
Please note that we have permanent, fixed term and relief contract opportunities on a part time, job share and flexible working basis. The salary is u England, Essex, Chelmsford
Recuriter: Essex County Council

Assistant Director

Hounslow London Borough Council
Up to £82k
Working across a wide range of high profile direct services, the emphasis for this role is on partnership working. Hounslow (City/Town), London (Greater)
Recuriter: Hounslow London Borough Council

Head of Parks and Environmental Services

Harrogate Borough Council
£58,778 - £61,882
You will have experience at a senior level in the management and delivery of front line services relevant to the functions Harrogate, North Yorkshire
Recuriter: Harrogate Borough Council

Programme Technician/Engineer

Norfolk County Council
£29,636 - £31,371 per annum
This is a challenging position which involves working across wide ranging activities. Norwich, Norfolk
Recuriter: Norfolk County Council

Principal Transport Planner – 2 posts (Warrington Waterfront Western Link)

Warrington Borough Council
£40,760 - £43,662 plus essential car user allowance
We are looking to form a new Warrington Waterfront Western Link Team and we are looking to fill a number of key posts Warrington, Cheshire
Recuriter: Warrington Borough Council

Director of Integrated Transport

Liverpool City Region
Salary up to £124,848
The Liverpool City Region Combined Authority is embarking on a search for an exceptional individual with the passion to deliver on our vision Liverpool, Merseyside
Recuriter: Liverpool City Region

Highways Manager

Oxford Direct Services
Oxford Direct Services
Recuriter: Oxford Direct Services

Data Entry Administrator

Telford & Wrekin Council
£18,795 - £19,171
Telford & Wrekin’s Public Protection Service is looking for an enthusiastic and self-motivated Data Entry Administrator Telford, Shropshire
Recuriter: Telford & Wrekin Council

Transport Planner

Camden London Borough Council
£33,122 to £38,423
You’ll have previous experience of working in a transport/planning/accessible transport environment Camden, London (Greater)
Recuriter: Camden London Borough Council

Parking Business Administrator Level 3 Apprenticeship

Brent Council
£15,000 p.a. inc.
This role will support the Brent Parking Team work to provide administrative support for both the Notice Processing Team Brentford (City/Town), London (Greater)
Recuriter: Brent Council

Principal Engineer (Development)

Liverpool City Council
£37,849 - £42,683
Liverpool City Council wish to recruit a Principal Engineer (Development) to provide managerial and technical support. Liverpool, Merseyside
Recuriter: Liverpool City Council

Traffic Manager

Lincolnshire County Council
£55,503 - £60,578
We are looking to recruit a Traffic Manager to join our Highways team Lincoln, Lincolnshire
Recuriter: Lincolnshire County Council

Team Leader x2 - Passenger Transport

Redbridge London Borough Council
£27,228 - £28,215 per annum
You will be responsible for overseeing the duties of Passenger Transport drivers as well as providing support to the service and managers. Redbridge, London (Greater)
Recuriter: Redbridge London Borough Council

UTMC Engineer

Warrington Borough Council
£31,371 - £34,788
You will support the UTMC Principal Engineer and work as part of a team responsible for all aspects of Urban Traffic Management and Control Warrington, Cheshire
Recuriter: Warrington Borough Council

Programme Assurance Manager Public Realm

Westminster City Council
£46,293 - £49,203 per annum
A graduate, or have equivalent experience, and you can show evidence of continued professional, managerial and personal development... City of Westminster, London (Greater)
Recuriter: Westminster City Council