Network Rail

(asked on 10th September 2014) - View Source

Question to the Department for Transport:

To ask the Secretary of State for Transport, what estimate he has made of the (a) total premium Network Rail has paid for borrowing from private financial markets in each year since 2001 and (b) savings Network Rail would have made since 2001 if it had borrowed from the Government and not private financial markets.


Answered by
 Portrait
Claire Perry
This question was answered on 14th October 2014

Historically Network Rail was classified to the private sector and borrowed from the markets. Government provided a financial indemnity in return for a fee from Network Rail to Government. The fee was set by the Office of the Rail Regulator to reflect the market cost of the indemnity. The financial indemnity allowed Network Rail to borrow using the strength of the Government’s balance sheet, whilst leaving it the normal private sector freedom to manage its own treasury policy.

Following the Office of National Statistic’s announcement that Network Rail would be classified to the public sector from 1 September 2014, Network Rail’s borrowing and liquidity is being managed as part of central Exchequer processes.

Department for Transport (DfT) is lending to Network Rail on terms consistent with the Regulator’s expectations of Network Rail’s cost of debt over control period 5. That is, the cost to Network Rail is intended to be broadly unchanged.

Previously Network Rail paid a fee to Government for the financial indemnity and interest to the market, which could be thought of as the underlying government benchmark rate (i.e. gilts) plus a small premium. Network Rail now pays the equivalent amount to Government. In control period 5 (CP5: 2014-2019) we estimate a saving to the taxpayer of c.£95m to £190m on debt issuance of £28.5bn (now effectively gilt issuance), assuming that the premium to gilts would have been between 0.2% and 0.4%.

Network Rail estimates that the average premium paid over Gilts across control period 3 (CP3) and control period 4 (CP4) was 0.15% to 0.25%. Given the mix of funding and number of instruments issued over time we have not attempted to estimate the theoretical saving to taxpayers if Network Rail had borrowed from Government in CP3 and CP4 and the premium had been retained by the taxpayer. It is also not possible to quantify the potential impact on gilt rates had additional debt been source by the exchequer.

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