Last year our equity value of Network Rail fell from £8.18 billion to just £6.39 billion. It is a very small sum for all that land, all those buildings, all that track and signal investment. Worse still, our equity value went down despite the railway spending another £6.47 bn on investment that year. I say our because of course Network Rail is owned by all of us, the taxpayers of the UK.
Let’s just look again at those numbers. Network Rail invested more in 2014-15 than its complete equity value at the end of the year. Despite investing so much, its equity value went down.
It takes a special management genius to be able to spend so much and to have so little equity at the end of it to show for it. It is true a lot of the investment was paid for by borrowings, but surely the idea is to add value, not to subtract it if you borrow to invest. When adding new investment to a well established investment and property, it is normal to show a profit on the investment when you put it in. Furthermore, Network Rail continued to enjoy high levels of subsidy/train operating company revenue from a rail system which remains heavily subsidised.
Overall last year it reported an after tax loss of £376 million. It did not have to pay large amounts of tax, but decided to write off tax losses it held as an asset, on the grounds that it was unlikely any time soon to be making sufficient profits to be able to use up the tax losses! However, if you turn to another of the financial statements that says the “total comprehensive(expense) for the year was (£1791 million)”, that is a large negative sum.
So the owner of the some of the best property routes into the hearts of our cities and across our countryside, with a monopoly over them, is a big loss maker that invests in a way which reduces the equity value of its business. Network Rail is putting very large sums of capital into the railway, but seems to lack discipline over how much to spend and how to control the costs of individual projects. I was all in favour of a new Reading station and associated works, but did it really need to take a rumoured £900 million to do? What return will taxpayers receive on that and similar investments? Why can’t the railway earn a living on all this new investment? The fares are certainly high enough. The problems lie with the cost base, and with the large number of empty seats they run around the country without the marketing flair to fill them. Meanwhile commuters and people on busy routes at busy times of day suffer from too few seats and high prices.