Network Rail’s debts soar as it upgrades track

Marion Dakers
THE OWNER of Britain’s railway has posted a rise in profits as it makes progress in upgrading the network, though its debt pile has ballooned by almost £1bn to £28bn in the space of six months.

Network Rail, the not-for-dividend body responsible for maintaining tracks and signalling, spent £2.06bn on improving the railway in the period, around the same as this time last year. Some work was suspended during the Olympics, but other projects such as upgrading the East Coast and West Coast lines sped up.

The group’s operating profits were flat at £1.23bn, while profits after tax shot up to £573m, from £136m a year ago.

But it conceded that delays on the network could be cut down.

“Whilst train punctuality is at high, historical levels Network Rail recognises that on parts of network performance is not as good as it should be,” said finance director Patrick Butcher.

“The railway continues to see strong traffic growth which provides us with the challenge of getting the balance right between capacity, reliability and efficiency,” he added.

The hike in net borrowings to £28.043bn was caused by the increase in value of inflation-linked bonds along with funding required for capital investment. Network Rail, which funds its operations through debt, issued almost £1.5bn in new bonds this year. It funds itself through a combination of debt issuance, track access charges and around £3.5bn a year in taxpayer subsidies.


NETWORK Rail’s whopping £28bn debt pile would be enough to send most bosses into a cold sweat.

But the owner of Britain’s railways was designed to be run in the red. NR was set up as an independent but state-backed group in 2003, in the wake of listed predecessor Railtrack’s collapse. It has no shareholders, but answers to around 80 members including the Department for Transport.

Because its profits are ploughed back into improving the rail system, NR is expected to issue a stream of bonds in various currencies to fund operations and larger upgrade projects, in addition to its state subsidies.
These bonds are guaranteed by the state, a backstop for which Network Rail pays the exchequer around £200m a year.

Happily for a government that is trying to rein in its debts, Network Rail’s independent status means its liabilities do not appear on the state’s books. This is despite the fact that 40 per cent of the rail industry’s costs are met through public subsidies.

The ratings agencies have given NR an AAA rating, in line with the British sovereign, and it pays interest rates close to those on gilts.

With assets of £45.3bn, Network Rail has permission to raise billions more in this way. Its current bond scheme is set up to issue £44bn. The Office of Rail Regulation is working on ways to keep NR’s funding sustainable, including a plan to cap its debts at between 70 and 75 per cent of its assets. However, there is no firm plan on the horizon to reduce the overall debt level.