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Full privatisation remains an option for Network Rail – Shaw report

Network Rail could be fully privatised, or kept as a public sector body with concessions to private companies, as a result of recommendations from HS1 boss Nicola Shaw in her initial review of the infrastructure body.

The Shaw report – which represents, and will lead to, the biggest shake-up of Network Rail in a decade – has floated the possibility of reclassifying the entire body as private by way of accessing the equity capital markets or selling an equity stake to investors.

Other alternative options, inspired by transport models in other countries, include maintaining Network Rail as a public sector body while separating out a route to be given in concession to private parties, and financing specific infrastructure projects through a blend of private and public money.

But Shaw argued that changes could be observed in a spectrum, from fully privatised to fully public and at different levels, including encompassing the entire body, parts of the company or just specific projects:

Alternative routes could include monetising non-core assets, such as charging for depots and car parks, but Shaw suggested that these property assets “have never represented a significant source of funds for Network Rail” – at least not to fund all the cost of enhancing the railway, as is done in Japan or Hong Kong.

Network Rail could also start receiving partial funding from local or devolved governments for specific regional projects – such as the £3.5m Pye Corner station in Newport.

Join ventures and other forms of private-public sector partnerships could also be allowed to develop and build assets, and then either operate under concession for a number of years or transfer them to Network Rail. As with examples in France, these partnerships could involve developers as well as financial parties.

And businesses could also be compelled to contribute to infrastructure costs through levies or other financial arrangements. The recent devolution of business rates, for example, would give some metropolitan areas a capped power to increase rates to fund infrastructure, meaning local businesses could step in.

But the HS1 chief executive reiterated that the sustainability and affordability of the future funding of Network Rail will depend on a number of factors, such as the long-term political support for the rail industry and robust cost estimate processes.

She also pointed to the relatively recent Office of National Statistics decision to reclassify Network Rail as part of the public sector, and the changes that ensued, as a complex element to its restructuring.

She added: “Any recommendations relating to Network Rail have to work from a whole systems perspective, otherwise fixing an issue specific to Network Rail may import risk into the wider railway system. In a safety-critical industry this point is key.”

First draft

Shaw’s report is only an initial scope of possible options ahead of the final recommendations she is set to make to the chancellor and transport secretary in early 2016.

Her team is considering all options equally at this stage and have asked for written responses from the rail industry in a consultation running from today (12 November) until 24 December.

Her review team will also be holding a number of discussion sessions around the country to bring together operators and related companies with an interest in the future of Network Rail.

These are due to start on 27 November (Birmingham) and finish on 18 December (Manchester).

She added in a foreword on the report: “At the end of this work, I would like to be able to propose changes to Network Rail’s structure and financing which will, among other things, help Britain to develop economically and socially.

“So please do contribute – let us know, from your lenses, if we have missed things, and whether there are other aspects we should consider – only with everyone’s best brains on this will we find the right way forward for the next steps in the journey of the rail industry.”

Background

Shaw was appointed to advise the government on how it should approach the longer-term future shape and financing of Network Rail in July of this year.

She is working closely with Sir Peter Hendy, Network Rail chairman, who is conducting his own separate review into the projects that will need to be ditched from CP5 to keep costs within budget. His review is due to be published imminently.

The chancellor had already announced in his Summer Budget that the government would change the way it channels public money through the rail industry so that “Network Rail focuses firmly on the needs of train operators and, through them, passengers.”

The practical effect of this will be to reduce the proportion of money Network Rail gets directly from the government in the form of its grant, and make it rely increasingly on track access charges paid by the operators.

But in September, the HS1 boss spoke to the BCC ahead of today’s initial report, at which point she revealed that her review team was considering privatisation.

“I have been asked to consider the structure and financing of Network Rail. On the former point I am considering Network Rail’s relationships with its customers, how its structure works with government devolution and how the industry works where there is growing demand for the railway.

“On the latter, I am looking at all the issues and options on the spectrum from where we are now to full privatisation.”

Shadow transport secretary, Lilian Greenwood MP, said: “This report opens the door to the total privatisation of Britain’s railways. Network Rail needs to improve but more fragmentation and more privatisation are the last things we need.

“We need a plan to improve the railways based around more integration and taking the franchises into public ownership, but these proposals would instead risk a repeat all the worst mistakes of the recent past. Labour will oppose them every step of the way and Ministers should urgently rule out the privatisation of Network Rail.”

(Top image c. Stefan Rousseau)