Network Rail debts to increase to £50bn by 2020, says ORR

15 July 2013 (Last Updated July 15th, 2013 18:30)

The UK's Office of Rail Regulation (ORR) has said the country's railways are on the brink of a funding crisis, with Network Rail's debt expected to reach £50bn by 2020.

Network Rail train

The UK's Office of Rail Regulation (ORR) has said the country's railways are on the brink of a funding crisis, with Network Rail's debt expected to reach £50bn by 2020.

In 2012-13, Network Rail's net debt increased by £3.1bn and it paid £1.5bn in interest on its £27bn debt, the equivalent to just under a fifth of the revenue it receives from the government and train operators.

The rail operator's focus on new project investments to increase the capacity of the current network could cost £2.5bn per year over the next two decades.

According to ORR estimates, Network Rail's debts could reach to £62bn in real terms by 2034, with interest on debt reaching £2.3bn per year.

ORR said that in the last ten years the government has invested billions of pounds into upgrading and maintaining the railways through Network Rail.

Network Rail's interest payments are likely to consume over a third of its overall budget by 2030; ORR is calling for more transparency on rail funding so the public can clearly see the costs of running a railway.

ORR chief executive Richard Price said that the agency wants to highlight the challenges and opportunities Britain's railways to face over the coming decades and to debate the ways in which future growth can be secured.

"ORR wants to ensure that future rail funding is sustainable and the industry is organised to anticipate the future needs of its customers," Price said.

EC Harris senior advisor Richard Bowker said that it makes sense to be constantly looking at ways to make the railway network as efficient as possible and in particular to look at ways to limit the growth of the debt mountain that has built up.

"Network Rail's debt will need to be repaid at some point and it is vital that the solution does not risk undoing the tremendous growth that has taken place on the railway network in the past ten years," Bowker said.

"There is no quick fix to the Network Rail funding challenge and the entire industry must tread carefully to avoid unintended and undesirable consequences," Bowker added.

"Network Rail's debts could reach to £62bn in real terms by 2034, with interest on debt reaching £2.3bn per year."

ORR suggested that the government should consider privatising sections of the railway network as part of radical proposals to reduce the industry's cost to the taxpayer.

Among the proposals suggested by the rail regulator include the partial break-up of Network Rail into separate business units.

The UK government, however, has downplayed the debt concerns raised by ORR.

A Department for Transport spokesman was quoted by Guardian as saying that ORR numbers are illustrations based on assumptions about future investment.

"It is normal for businesses to fund investment through debt. The government believes that current debt levels are sustainable and reflect decisions from successive governments to invest in rail and we expect strong revenue growth into the future," the spokesman added.

ORR has published its long-term regulatory statement, 'Opportunities and Challenges for the Railway', which is intended to set out its proposed regulatory approach for the future and identifying priorities for the growth and sustainability of railways.


Image: Network Rail's net debt increased by £3.1bn in 2012-13. Photo: courtesy of Phil Sangwell.