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INFORMED SOURCES February 2005

Support will top £4billion this year

Taxpayers' support for the railway was under budget last year – but only thanks to a property clawback.

You would not believe what a Garth-banding process it is finding out how much of the tax-payer's money the railway needs. Back in the February 2003 column, following some serious spreadsheet action, there was the Shock! Horror! revelation that support for the railway was running at £3billion a year. This was conveniently three times the subsidy at the end of the shortlived Thatcher/Lawson boom of the 1980s.

Shock?, horror? I didn't know the half of it. A couple of weeks later the Strategic Rail Authority published its 2003 Strategic Plan which included a draft budget. A correction followed: the true figure for 2003-04 was £3.8bn

Here is that original table.

Table 2

Source Strategic Plan 2003

Odyssey.

In September 2004 SRA published National Rail Trends covering the first quarter of 2004-05. The table of Government support for the rail industry included 2003-04 for the first time. Total support, including PTE grants, was £3,607 million. Naturally I checked the outturn against the 2003 budget and started a three month accounting odyssey.

For a start, the figures in National Rail trends come from the Department for Transport not the SRA and the breakdown of the spending is completely different to the SRA budgets.

Table 2

Government support to the rail industry 2003-04

Source: National Rail Trends

By October I thought I had reconciled the two sets of figures. It seemed prudent to ask the ever helpful SRA press office to check my maths. Three months, two iterations and some supplementary questions later, the SRA's financial wonks had agreed Table 3 and clarified where the money went.

What cost the most brain cells was DfT's £179 million of 'Other elements of government support'. This, it turns out, includes SRA's ‘Project development and implementation' category.

SRA explained that within the ‘other elements' category, £95million is attributed to   Project Development & Implementation, including RPP schemes and project development. The remaining £84 million  includes SRA running costs.

Table 3 Budgets and out-turn 2003/04.

 Sources:

1) 2003 SRA Strategic Plan

2) SRA official budget for 2003/04

3) DfT figures for actual out-turn   (source National Rail Trends) .

4) Includes implementation costs

No doubt you have noted an anomaly in Table 3. SRA's formal budget for 2003-04 increased the running costs of the Authority from £210million in the 2003 Strategic Plan to £258million. So how could £84 million ‘include' SRA running costs?

Back to the SRA press office who explained that the difference between budget and actual  is due to the  re-allocation of some expenditure  from the ‘Other Costs' category  to  the Franchise Payment line plus a one-off  benefit from the Clause 18.1  property clawback    mechanism within Network Rail's regulated accounts. 

Current year.

So that was 2003-04. But what about the current year which includes the results of the Rail Regulator's Interim Review for the first time? Table 4 shows my stab at the budget.

Table 4; A draft 2004-05 budget.

Source for 2004-05 budget: Informed Sources analysis

Notes: 1) Maximum assumed in Interim Review settlement

You will note that franchising costs have gone up, as have grants for Network Rail. With CTRL at the expensive fitting-out stage I have increased the DfT support and, with SRA still going flat out, have assumed running costs in line with the budgeted figure for 2003-04. Project development and implementation has been cut back because not much is going on.

All this increases total Government support for the year to around £4.4 billion in round numbers. But remember that under the Interim Review settlement, Network Rail does not get its full entitlement for the first two years of control Period 3 (April 2004-April 2009) and borrows to cover the difference between income and expenditure.

Adding projected borrowing raises the total support for the railway to £5.9 billion, which the taxpayer would have had to pay if the Interim Review had not been phased and will now pay by instalments.

Underspend.

But Network Rail is currently underspending on OMR for various reasons. Above all, to increase spending you need contracts to let. To let contracts you need an efficient organisation with competent trained staff to specify the work and manage the contracts. Creating these organisations, such as the Signalling New Works Procurement group, takes finite time.

Then, as the Interim Review showed, efficiency of maintenance and renewals varied across the regions. Inefficiency has to be identified and rectified.

Finally, in a far flung empire some satraps will have their own ‘pet' projects. According to Informed Sources, some ‘absolutely daft schemes' have been stamped on.

Thus Network Rail could underspend by up to £800 million in 2004-05. Thus around £5billion is probably a safe round number for public support.

Opacity.

I have to add that producing Table 4 brought home the sheer opacity of the railways' finances. This is not just a problem for investigative writers.

When the SRA published its annual report for 2003-04, the vital Table of franchise payments to TOCs was wrong and a corrected page had to be sent out. I don't mean a misprint or two, numbers were wrong and whoever produced it and whoever proof read it before publication didn't understand what was going on and let them through.

Once upon as time, I was responsible for the printing of the annual report and accounts for a large industrial group. Every time I brought in a fresh set of proofs we (managing director, finance director, company secretary and me as publicity manager) read them right through. And when, on one occasion, an unwanted semi-colon got into the published version, I got a mild ticking off.

So if the SRA can't spot a beam in its eye, the railways are in deep trouble. If we don't understand how much the industry is costing and where the money is going, then politicians can safely weasel to the industry's detriment.

Meanwhile, here's something I produced earlier. It shows government support as a percentage of the railway's total income. Think on ‘t.

Continues.............

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