Public (Interest) or Private (Gain)? The Curious Case of Network Rail's Status
| Published date | 01 June 2007 |
| Date | 01 June 2007 |
| Author | Robert Jupe |
| DOI | http://doi.org/10.1111/j.1467-6478.2007.00390.x |
JOURNAL OF LAW AND SOCIETY
VOLUME 34, NUMBER 2, JUNE 2007
ISSN: 0263-323X, pp. 244±65
Public (Interest) or Private (Gain)? The Curious Case of
Network Rail's Status
Robert Jupe*
This paper develops Whitehouse's 2003 examination of the creation of
Network Rail, a case study of New Labour's attempt to operationalize
the `third way'. Significant changes have occurred since 2003 which
make Network Rail's position as a private company with private sector
debt appear increasingly anomalous. These changes include: the
reclassification of the debt of another rail company from private to
public, and the introduction of `imputed debt' into public sector debt
measurement; new funding arrangements for Network Rail which make
it heavily dependent on public support; and important rail regulatory
policy changes. The paper analyses these changes, and revisits White-
house's conclusions. In particular, this paper challenges Whitehouse's
contention that Network Rail's creation led to the de facto renational-
ization of the railway infrastructure at a reduced public cost. The
paper demonstrates that Network Rail is a very expensive mechanism
for channelling public money to private companies, and argues that the
Labour government's attempt to maintain the company's private sector
status as part of its third way approach is ultimately untenable.
INTRODUCTION
The original owner of the rail infrastructure, whose shares were issued in
1996 as part of the fragmentation and privatization of British Rail, was
Railtrack. The company was intended to be privately funded by payments
from train companies for access to the rail network. As a private company it
was not surprising that Railtrack's initial focus was on producing highly
244
ß2007 The Author. Journal Compilation ß2007 Cardiff University Law School. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
* Kent Business School, University of Kent, Canterbury, Kent CT2 7PE,
England
R.E.Jupe@kent.ac.uk
I would like to thank Philip Thomas, Warwick Funnell, and three anonymous reviewers
for their helpful comments on an earlier draft.
attractive returns for its shareholders, not extensive investment in network
maintenance and renewal. The company was, however, meant to be incen-
tivized by regulation which guaranteed Railtrack a high return on capital
employed. In spite of its poor performance in managing the rail network,
Railtrack was awarded a generous funding settlement by its regulator, which
included a 40 per cent increase in revenue, in October 2000. However, the
settlement was the same month as the Hatfield crash when four passengers
were killed and 70 injured. The crash was followed by a major cost
escalation, as a result of a huge programme of inspections and renewals, and
prolonged disruption of the network. In October 2001, the company was put
into administration and then replaced a year later by Network Rail, a not-for-
dividend company limited by guarantee. Network Rail does not have
shareholders but is debt-financed. It is nominally a private company but is
heavily reliant on both direct and indirect public support. It receives very
significant subsidies from the government and its substantial, and escalating,
borrowing has only been possible because of government support.
The key argument used in support of Network Rail's corporate structure,
compared to Railtrack's, was that it avoided `entirely the need to consider
shareholder interests'.
1
There is an extensive and ongoing debate, however,
over Network Rail's status, funding, accountability, and corporate govern-
ance structure. The National Audit Office (NAO) has highlighted its
`complex' governance structure, its problematic accountability `given the
desire for it to be classified as a private sector business', and its dependence
on public support.
2
The Transport Select Committee argued that Network
Rail's ownership structure is unacceptably weak' and that its regulatory
arrangements `have not performed well'.
3
Two authorities on transport con-
cluded that `the issues of weak governance arrangements and lack of effi-
ciency incentives' in Network Rail have not been addressed.
4
The `Jesuitical
debates over the status of Network Rail' argued Wolmar, `would be amusing
if they did not cost taxpayers dear'.
5
Whitehouse made a substantial contribution to the debate about Network
Rail in her 2003 paper, which examined the creation of Network Rail as a
case study of New Labour's attempt to operationalize its `third way'
philosophy. In her analysis, Whitehouse raised five key issues about
245
1L.Whitehouse, `Railtrack is Dead ± Long Live Network Rail? Nationalization
Under The Third Way' (2003) 30 J. of Law and Society 217±35, at 226.
2 National Audit Office, Network Rail ± Making a Fresh Start, H.C. (2003±04) 532,
para. 6iii.
3 Select Committee on Transport, Seventh Report, The Future of the Railway, H.C.
(2003±04) 145-I, summary.
4C.Foster and C. Castles, `Reforming the Railways: A Response to the 2004 White
Paper' in Regulatory Review 2004±05, Centre for Regulated Industries, Bath
University (2005).
5C.Wolmar, On the Wrong Line: How Ideology and Incompetence Wrecked Britain's
Railways (2005) 218.
ß2007 The Author. Journal Compilation ß2007 Cardiff University Law School
To continue reading
Request your trial