NETWORK RAIL has been told to brace itself for deep spending cuts as George Osborne prepares to slash its £38.5bn budget.
The owner and operator of Britain’s 20,000 miles of railway has been dragged into the Treasury’s spending review, which is demanding that non-protected departments make cuts of 25%-40%. This could mean Network Rail has to slash another £1.5bn from its budget over the next three and a half years, lead- ing to drastic reductions in upgrades, pay, materials and even maintenance.
The state-owned company was told of the extra cuts in a letter from a senior Department for Transport (DfT) mandarin, Jeremy Rolstone. The demand stunned Network Rail executives and also set the Treasury on a collision course with the independent regulator, the Office of Rail and Road (ORR). Since 1993, the five-year budget of Network Rail and its predecessor Railtrack has been protected by law and set in agreement with the ORR. Overturning that could trigger a legal challenge from the watchdog.
Rolstone is understood to have written to Network Rail in recent weeks to inform it of the need to slash spending well beyond the 20% it is already trying to achieve in its five-year “control period”, which runs from 2014 to 2019. Another 5% of savings would equate to £1.5bn from its remaining £30bn budget. The letter is thought to have highlighted areas such as pay and bonuses as potential targets. The company paid out almost £60m in bonuses last year.
Osborne’s cuts are meant to exempt capital spending, but there is concern Network Rail could have to trim everything from jobs and services to parts and maintenance.
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It has been under direct government control since last September, when its debt — now £38bn — was reclassified as public sector debt. It had previously raised funds on the bond markets but now relies on Whitehall for spending.
The company has endured an increasingly tense relationship with the DfT after soaring costs and delays on projects to upgrade stretches of track in the West Country, Midlands and across the Pennines to run electric trains. The electrification programme is being assessed by its new chairman Sir Peter Hendy, London’s former transport commissioner, and some schemes could be sacrificed as part of the spending review.
Hendy will file an initial report to ministers by the end of the month, and the Midland Main Line is widely expected to be pushed into the next decade as the DfT prioritises the Great Western upgrade. Hendy is also under pressure to resurrect plans to overhaul the TransPennine route — part of Osborne’s pledge for a “Northern Powerhouse”.
The DfT refused to comment on the letter. Network Rail and the ORR declined to comment.