ONS signals rail nationalisation with debt sheet move

The de facto nationalisation of Britain’s railways is closer to being officially recognised after the national statistics watchdog launched a review to consider counting the operators’ debts on the government balance sheet.

The technical reclassification has prompted concern among rail executives who are anxious for the government to commit to a public-private partnership over the longer term. 

The Office for National Statistics said its decision was prompted by the government agreeing in March to rescue the sector through the Covid-19 pandemic with a six-month package that effectively underwrote any losses.

The rail companies have already received £3.5bn of taxpayer support. Ministers are now considering a further rescue package to help them survive through to late 2021 amid expectations of subdued passenger numbers for months ahead. 

“ONS is reviewing the classification status of train operating companies following the creation of emergency measures agreements between them and the government,” a spokesman told the Financial Times, adding that the assessment would be completed as soon as possible.

One rail industry executive told the Financial Times it would be a “danger” if the move was “dismissed as a technicality”.

Even before the pandemic the government had committed to overhauling the rail franchising system © Toby Melville/Reuters

“Rail is at a crossroads. The decisions that are taken in the next few weeks will set the direction of travel for the industry for the next decade in terms of the wider reform agenda,” he said. “What actually needs to be happening right now is the government boldly and confidently saying this is the direction of travel for a renewed public/private partnership.”

With passenger numbers still only a trickle, executives are increasing their demands for an extension of state support in order to give the government and industry time to assess passenger demand and consider proposals to overhaul the railways. 

The government is prepared to meet that demand for a fresh 12-18 month “interim package” of support, Whitehall insiders said. “If it is rumbling on and there is a chronic fall in customers then there will need to be help to stabilise the system,” said one official.

On Wednesday, FirstGroup, which has contracts to run South Western Railway and Transpennine, warned there was “material uncertainty” over its ability to continue as a going concern over the next year because of a lack of clarity over state support and the pace of recovery in the sector. 

Matthew Gregory, chief executive at FirstGroup, told the FT that “with passenger volumes where they are at the moment, we will have to have an extension in some form” of the emergency measures agreements. 

“The reality is that we’re carrying between 10-15 per cent of the passengers we were carrying before,” he said. Mr Gregory said the sector needed to move forward from the crisis and implement a new system that worked for everyone. 

Even before the pandemic the government had committed to overhauling the rail franchising system, with franchises replaced by flexible longer contracts, amid a crisis in the sector. The model for that type of management contract system would be the London Overground system.

In March, the government nationalised the Northern Rail franchise, having taken over the East Coast line in 2018. This was the first time two franchises had been in government hands since privatisation of the railways 30 years ago.

Those two lines will be the subject of a separate revision by the ONS next week, when they will appear in its “public sector finances” release.

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