You may have heard that Network Rail has finally been reclassified as being fully part of the public sector. You might think this is a good thing – accepting the reality of its renationalisation and putting any possibility of selling it to bed – or a bad thing – taking away its ability to borrow money and therefore creating a new Treasury veto on capital investment.
But you might not have imagined that they would miss the budgetary deadline and need a £550m bridging loan. From Roger Ford:
On 23 April, the Debt Management Office (DMO), published its statement on ‘Central Government Net Cash Requirement out-turn for 2013-14’. And tucked away in a footnote was the revelation that in future, ‘value for money for the taxpayer will best be secured by Network Rail borrowing directly from the Government, rather than by Network Rail issuing debt in its own name’.
DMO added that DfT and NR were ‘already discussing details of a possible loan arrangement in advance of Network Rail’s formal reclassification to the public sector in September 2014’. Government could lend ‘up to £6.5billon’ to NR during the current financial year, DMO added.
Six days later, Transport Secretary Patrick McLoughlin told Parliament that DfT was seeking a £550 million advance from the Government’s contingencies fund ‘to meet an urgent cash requirement’, pending parliamentary approval of the Main estimate for 2014-15. He explained that following the decision on NR’s future borrowings, DfT had included ‘in total’ £6.5 billion in this year’s Main estimate. Note that the DMO’s ‘up to’ has gone missing.
I won’t go into the detail here, but the annual budgetary process has a gap between the start of the financial year in April and Royal Assent for the legislation authorising the budget in July. Because of the late decision on NR borrowing, DfT missed the usual procedures to bridge the gap, hence the need for a £550 million payday loan.”
This isn’t very good.