Network Rail may have to cut back its enhancement programme because the Treasury plans to put proceeds of an asset sale towards deficit reduction, rather than plugging a black hole in its finances, it has emerged.
It follows reports last month that the rail infrastructure body is facing its largest funding crunch since the aftermath of the 2007/8 financial crisis.
According to the recently published minutes of the Network Rail board meeting last September, ‘whilst the asset sales programme had generated strong interest, due to the likely HMT accounting treatment of the proceeds of any sale there was a realistic prospect of a significant shortfall in funding as HMT were now requiring the proceeds of the asset disposals programme to count to deficit reduction thus handicapping NR’s use of the cash to fund rail enhancement schemes'.
Following a review on 2015 by chairman Sir Peter Hendy, Network Rail announced plans for a £1.8bn sale of ‘non-core’ assets to help fill a £2.5bn gap in its modernisation programme, alongside £700m of extra borrowing.
As Transport Network and Highways have reported, the rail body had not completed the sale of any assets, over a year on from the review.
A Network Rail spokesperson said: ‘We have been working closely with colleagues across Government to assess the assets we had earmarked to sell following the Hendy Review. This process is ongoing.’
According to the minutes, Network Rail’s board ‘agreed that it was paramount that the Company should not make commitments beyond its known financial capacity’.
The board also agreed to continue discussions with the Treasury and the Department for Transport to ‘review the enhancement programme which is deliverable within CP5 [Control Period 5] should the accounting treatment be regarded as unable to make the expected funds available’.
Network rail would also ‘explore additional loan facilities in order to deliver the CP5 enhancement programme and overall business plan,’ the board agreed.
Stephen Joseph, chief executive of the Campaign for Better Transport, told the Times: ‘Passengers and freight users will be outraged to discover that bits of the railway are being sold off to pay down the deficit rather than improving punctuality, reducing overcrowding and cutting fares.’
Labour’s shadow transport spokesman, Andy McDonald, said ‘It’s outrageous that this is being done under the radar. The net effect is going to be that the programmes we have been promised will be going backwards.’