DfT budget cut by £545m

[pemma]

It's rather ridiculous that we're seeing this cut to departmental budgets overall especially when this very week the OECD has come out and said that austerity hampers economic growth; the fetishisation the Tories have with cuts is deeply harmful.

£5m cut to station improvement fund (budget was £60m and only announced 3 months ago)

Wasn't an objective for station improvement fund bids that they are improvements which could generate commercial revenue?

 

[WatcherZero]

Yes, This and the previous round were tied to a requirement that all bids had to have a minimum 2:1 return on investment for the Dft within 10 years. Bit of a departure from the original purpose of the station improvements fund which was to make stations disability accessible.

 

[pemma]

Yes, This and the previous round were tied to a requirement that all bids had to have a minimum 2:1 return on investment for the Dft within 10 years. Bit of a departure from the original purpose of the station improvements fund which was to make stations disability accessible.

If a taxi from a non-accessible station to an accessible station costs £5 per run and we assume on average 1 return journey is made by a disabled passenger per day then making the improvements would save £36,300 over 10 years before allowing for increases in taxi costs.

 

[6Gman]

Guardian has detailed the cuts.

£345m from selling land around Kings Cross
£124m cut to contingency funds
£31m cut to the London General Grant (A £1bn annual block grant towards London Underground, effectively a 0.7% cut for TfL)
£16m cut to regional airlinks subsidy through not expanding the program beyond Newquay and Dundee airports
£23m cut to Cycling Cities fund (fund had given grants totalling £114m over next three years so a 20% cut to promised cycling investment)
£5m cut to station improvement fund (budget was £60m and only announced 3 months ago)
£1m cut to Sheffield Tram-Train

In what way is selling land a "cut"?

 

[67018]

There is a material difference between investing an income stream in your asset and giving that income stream away and spending a small slither of that income stream that may come back through taxation (and even that depends on whatever taxation regime the purchasing company chooses to adhere to).

"Giving" the income stream away? I'd hardly call £345m a give-away.

Surely, politicking apart, the point is that the railway is there to transport people by running trains, not to act as a property company. Managing a property portfolio demands a separate set of skills to manage the business and its associated risks.

Whether it's either appropriate or desirable for such a property company to operate in the public sector, rather than the private, is a separate debate which there's no hope of getting a consensus on!

 

[Wolfie]

Are you expecting a very large U-turn by Angel Trains with regard to the Class 142 Pacer fleet from the previous statements made by that company.

What powers over Angel Trains do the DfT have?

I accept that my posting lacked precision but even so this response is a tad disingenuous. No one has seriously suggested that the 142s be retained...

 

[The Ham]

About twenty.
But it all depends on rental yield.
And there is risk which should not be taken on by a publicly funded organisation - although some can not resist.

There is also the "cost" of the extra loan which the government would have to take on to cover not selling it now, which even at 2% interest would be a £75 million over a 20 year period, meaning that in reality it would more likely take about 25 years before the costs had covered the interest.

 

[yorksrob]

"Giving" the income stream away? I'd hardly call £345m a give-away.

Surely, politicking apart, the point is that the railway is there to transport people by running trains, not to act as a property company. Managing a property portfolio demands a separate set of skills to manage the business and its associated risks.

Whether it's either appropriate or desirable for such a property company to operate in the public sector, rather than the private, is a separate debate which there's no hope of getting a consensus on!

Go to any major railway station and you will find Network Rail acting as a property company. This is isn't done as a hobby, but because it brings in a sustainable revenue stream which can offset some of the other costs of running a railway.

Out of interest, why would it be any less appropriate for such a company to operate in the public sector, if it helps to off-set the costs of a vital public service ? Can anyone come up with a reason other than ideology ?

 

[matt_world2004]

Go to any major railway station and you will find Network Rail acting as a property company. This is isn't done as a hobby, but because it brings in a sustainable revenue stream which can offset some of the other costs of running a railway.

Out of interest, why would it be any less appropriate for such a company to operate in the public sector, if it helps to off-set the costs of a vital public service ? Can anyone come up with a reason other than ideology ?

It is this misguided ideology that public services should not compete with private companies. I cannot see why not . if it reduces the burden of those public services on the taxpayer.

 

[67018]

Go to any major railway station and you will find Network Rail acting as a property company. This is isn't done as a hobby, but because it brings in a sustainable revenue stream which can offset some of the other costs of running a railway.

Out of interest, why would it be any less appropriate for such a company to operate in the public sector, if it helps to off-set the costs of a vital public service ? Can anyone come up with a reason other than ideology ?

In stations, the commercial activity is part of the overall transport operation. It would be more difficult to separate the two (although not impossible - maybe worth trying!). The question is, why would a rail operator be any good at being a landlord of property unrelated to the railway?

There are numerous examples, in both public and private sector, of organisations catching a cold by operating outside their 'core' business in an attempt to make easy money. There are often problems of expertise - working in an industry the organisation doesn't fully understand - and distraction of management.

As for whether it would be better public or private, as I've said there is little point in getting into that debate here, as (a) the discussion will quickly go way off the topic of railways and (b) it's highly liable to degenerate into a(nother) increasingly strident statement of people's political views. It basically depends on what you believe is the appropriate role of the state, so it can't help being an ideological debate. (And that's even before you get into 'hybrid' models like minority public shareholdings, sovereign wealth funds et al).

It is this misguided ideology that public services should not compete with private companies. I cannot see why not . if it reduces the burden of those public services on the taxpayer.

"I have strong views, you are opinionated, he is blinded by misguided ideology". Your statement contains the word 'if' which could be debated at length.

 

[telstarbox]

A large part of NR's property empire is railway arches under operational lines which are rented out to light industrial units, boxing gyms, bars and clubs and so on. It's clearly better for them to stay as the landlord so they can regulate activities in the arches and make sure the safety of the line isn't compromised.

 

[yorksrob]

In stations, the commercial activity is part of the overall transport operation. It would be more difficult to separate the two (although not impossible - maybe worth trying!). The question is, why would a rail operator be any good at being a landlord of property unrelated to the railway?

There are numerous examples, in both public and private sector, of organisations catching a cold by operating outside their 'core' business in an attempt to make easy money. There are often problems of expertise - working in an industry the organisation doesn't fully understand - and distraction of management.

As for whether it would be better public or private, as I've said there is little point in getting into that debate here, as (a) the discussion will quickly go way off the topic of railways and (b) it's highly liable to degenerate into a(nother) increasingly strident statement of people's political views. It basically depends on what you believe is the appropriate role of the state, so it can't help being an ideological debate. (And that's even before you get into 'hybrid' models like minority public shareholdings, sovereign wealth funds et al).

In this instance the state enterprise isn't even speculating and purchasing an asset (in the way some pension funds, which are also non profit making organisations, purchase shares) so it's not as though it is taking an unjustifiable risk with public funds. The railway could allow someone else to develop the land and take the risk, but maintain a stake in it. It would merely be making a use of an asset which it already owned. The question of whether that asset was directly used by railway passengers would be irrelevant, compared to whether it generated an income stream.

I'm afraid that if someone poses an argument which they are not prepared to justify, my default position is to assume that they can't justify it, regardless of protestations.

 

[sarahj]

In stations, the commercial activity is part of the overall transport operation. It would be more difficult to separate the two (although not impossible - maybe worth trying!). The question is, why would a rail operator be any good at being a landlord of property unrelated to the railway?

There are numerous examples, in both public and private sector, of organisations catching a cold by operating outside their 'core' business in an attempt to make easy money. There are often problems of expertise - working in an industry the organisation doesn't fully understand - and distraction of management.

As for whether it would be better public or private, as I've said there is little point in getting into that debate here, as (a) the discussion will quickly go way off the topic of railways and (b) it's highly liable to degenerate into a(nother) increasingly strident statement of people's political views. It basically depends on what you believe is the appropriate role of the state, so it can't help being an ideological debate. (And that's even before you get into 'hybrid' models like minority public shareholdings, sovereign wealth funds et al).



"I have strong views, you are opinionated, he is blinded by misguided ideology". Your statement contains the word 'if' which could be debated at length.

The property side is not some fly by night operation set up in the chase for easy money.
Network rail and its predecessors have many years of experience of it and have a large commercial arm. By keeping it in house house they also have some control. Selling it off means they would loose control of whom space is rented to. The highest bidder for a space at a station might not be the tenant that's needed or wanted. Some 'private' rail companies who also rent out space sometimes make a good job, but I've also seen right hashes in the quest for more profit, including bad publicity. (lewes station cafe for one), removal of competition so the new higher renter does not have to compete with the cheap sandwich outlet in a car park, etc ,etc

 

[edwin_m]

The property side is not some fly by night operation set up in the chase for easy money.
Network rail and its predecessors have many years of experience of it and have a large commercial arm. By keeping it in house house they also have some control. Selling it off means they would loose control of whom space is rented to. The highest bidder for a space at a station might not be the tenant that's needed or wanted. Some 'private' rail companies who also rent out space sometimes make a good job, but I've also seen right hashes in the quest for more profit, including bad publicity. (lewes station cafe for one), removal of competition so the new higher renter does not have to compete with the cheap sandwich outlet in a car park, etc ,etc

I don't think anyone is suggesting that Network Rail gets rid of its property portfolio which is closely tied to the operational railway. This debate arises from the office development around Kings Cross, which is not railway-related other than being on former railway land and has no conceivable future railway use (I'm assuming safeguards are in place for the Thameslink tunnels).

This is effectively a purely commercial development which has landed with the DfT (I don't think NR is even involved) simply because it was on former railway land. It can probably be better run by an organisation which specialises in commercial buildings, rather than DfT having to set up a special arm to do this. Having the government competing with the private sector in this way could also lead to problems if the private companies complain that the government, in its capacity as lawmaker, does something that they consider favours its own commercial interests.

On a related topic, is the £1m saving announced in the Sheffield tram-train simply releasing contingency or has it been descoped or even cancelled?

 

[yorksrob]

It can probably be better run by an organisation which specialises in commercial buildings, rather than DfT having to set up a special arm to do this. Having the government competing with the private sector in this way could also lead to problems if the private companies complain that the government, in its capacity as lawmaker, does something that they consider favours its own commercial interests.

Ah, the old cannard that the private sector must automatically be better at something. If that were the case, it would be better for NR to employ an agent to manage the development whilst still retaining a stake in the profits.

As for competing with the private sector, this illustrates everything that's wrong with the country. We're prevented from acting in the public interest for fear of upsetting some speculator with expensive lawyers.

 

[Xenophon PCDGS]

Would the socialist brothers of the "RailUK oblast" think it was wrong that the Lancashire and Yorkshire Railway, besides running a "private" railway company, also had some hotels and had a large fleet of vessels that plied much of their trade on North Sea routes?

 

[yorksrob]

Would the socialist brothers of the "RailUK oblast" think it was wrong that the Lancashire and Yorkshire Railway, besides running a "private" railway company, also had some hotels and had a large fleet of vessels that plied much of their trade on North Sea routes?

But according to the arguments put forward by RUK's capitalist vanguard, why would any railway company want to own a hotel - an activity not directly associated with the operation of a railway ?

 

[67018]

In this instance the state enterprise isn't even speculating and purchasing an asset (in the way some pension funds, which are also non profit making organisations, purchase shares) so it's not as though it is taking an unjustifiable risk with public funds. The railway could allow someone else to develop the land and take the risk, but maintain a stake in it. It would merely be making a use of an asset which it already owned. The question of whether that asset was directly used by railway passengers would be irrelevant, compared to whether it generated an income stream.

I'm afraid that if someone poses an argument which they are not prepared to justify, my default position is to assume that they can't justify it, regardless of protestations.

But why would that income stream be necessarily greater than an alternative use for the money released by selling the property? My argument is simply that the railway should concentrate on running a transport network and not get involved in side businesses. In case you didn't notice I'm making no argument as to whether the property should be run by a public or private organisation.

Ah, the old cannard that the private sector must automatically be better at something. If that were the case, it would be better for NR to employ an agent to manage the development whilst still retaining a stake in the profits.

As for competing with the private sector, this illustrates everything that's wrong with the country. We're prevented from acting in the public interest for fear of upsetting some speculator with expensive lawyers.

'Speculator' and 'expensive lawyers' - emotive terms which don't help the debate. Personally I'd rather the law was there to keep government honest, especially when they have a commercial interest that might conflict with the public interest.

 

[yorksrob]

But why would that income stream be necessarily greater than an alternative use for the money released by selling the property? My argument is simply that the railway should concentrate on running a transport network and not get involved in side businesses. In case you didn't notice I'm making no argument as to whether the property should be run by a public or private organisation.

And my argument is that if the railway is bequeathed an asset, it should be allowed to make the most of that asset, rather than forced to sell it off for no good reason. If the railway was still owned by the LNER, would you be making the same argument that the railway shouldn't be involved in "side businesses"?

'Speculator' and 'expensive lawyers' - emotive terms which don't help the debate. Personally I'd rather the law was there to keep government honest, especially when they have a commercial interest that might conflict with the public interest.

Surely "honesty" has more to do with whether transactions are transparent and businesses are properly governed, both of which can be achieved in the public sector as much as the private (and as we know, the private sector isn't immune from issues with governance).

 

[6Gman]

And my argument is that if the railway is bequeathed an asset, it should be allowed to make the most of that asset, rather than forced to sell it off for no good reason. If the railway was still owned by the LNER, would you be making the same argument that the railway shouldn't be involved in "side businesses"?

Even the LNER never ran an annual deficit of £80bn!

 

[yorksrob]

Even the LNER never ran an annual deficit of £80bn!

Maybe it helped that they had some decent income streams and a little bit of diversification !

 

[edwin_m]

Ah, the old cannard that the private sector must automatically be better at something. If that were the case, it would be better for NR to employ an agent to manage the development whilst still retaining a stake in the profits.

As for competing with the private sector, this illustrates everything that's wrong with the country. We're prevented from acting in the public interest for fear of upsetting some speculator with expensive lawyers.

You'd probably be happier in China then, where the public sector claims to run almost everything.

 

[67018]

And my argument is that if the railway is bequeathed an asset, it should be allowed to make the most of that asset, rather than forced to sell it off for no good reason. If the railway was still owned by the LNER, would you be making the same argument that the railway shouldn't be involved in "side businesses"?



Surely "honesty" has more to do with whether transactions are transparent and businesses are properly governed, both of which can be achieved in the public sector as much as the private (and as we know, the private sector isn't immune from issues with governance).

Not sure it's being sold off for no good reason. The government has demanded savings to pay off their large debts. Personally, I'm quite pleased that a big chunk of the saving is being made by selling off some land that's totally unconnected with running trains, rather than (for example) cutting investment or questioning the viability of marginal lines.

Sorry, I don't get your LNER reference. But I'm not sure of the relevance of a company that hasn't existed for nearly 70 years.

I totally agree with your point on governance - which tends to have more to do with organisational culture and quality of leadership, rather than who owns the organisation in question - which is why I'd have no objection to the property being transferred to a public body dedicated to property investment. Except that this option wouldn't release the cash the government wants so we'd be back to square one.

So, two questions. 1: are the government right to be demanding savings? Boils down to a political argument, but fairly fruitless: we've just had an election, we got this government and we are stuck with it at least for now. 2: assuming the savings must be made, where do they come from? Are there better ways of finding the cash?

 

[yorksrob]

I totally agree with your point on governance - which tends to have more to do with organisational culture and quality of leadership, rather than who owns the organisation in question - which is why I'd have no objection to the property being transferred to a public body dedicated to property investment.

But in this instance, the revenue stream wouldn't go back to the railway, so it would be no better than a private sell off.

So, two questions. 1: are the government right to be demanding savings? Boils down to a political argument, but fairly fruitless: we've just had an election, we got this government and we are stuck with it at least for now. 2: assuming the savings must be made, where do they come from? Are there better ways of finding the cash?

Have the regional railway own it's own trains and remove rolling stock leasing costs for those lines, thus reducing subsidy.

 

[67018]

But in this instance, the revenue stream wouldn't go back to the railway, so it would be no better than a private sell off.

It's all the same pot in the end; pretty sure this sort of thing is accounted for when working how much the DfT dishes out.

Problem is, cross-subsidising one activity through a separate one is generally seen as inefficient and risky these days - which is why private sector conglomerates are often valued at less than the sum of their parts and come under pressure to break up. They have the disadvantages of size without the benefits of scale.

Have the regional railway own it's own trains and remove rolling stock leasing costs for those lines, thus reducing subsidy.

Might work -any idea what the difference would be between leasing costs and the cost of buying and maintaining the trains? Probably would take too long to implement though, so wouldn't release the cash this year.

 

[yorksrob]

It's all the same pot in the end; pretty sure this sort of thing is accounted for when working how much the DfT dishes out.

Problem is, cross-subsidising one activity through a separate one is generally seen as inefficient and risky these days - which is why private sector conglomerates are often valued at less than the sum of their parts and come under pressure to break up. They have the disadvantages of size without the benefits of scale.

It's not the same pot. Not only will the revenue be sliced when it's re-routed via a third party and then the Government, but the railway will also lose control. What would have been the railway's own resource to allocate, suddenly comes via the Government with all of its strings attached (a noted side-effect of our railway privatisation model).

The irrational fear of cross-subsidisation should be left as a private sector fixation. The railway, in particular relies on cross subsidy because at its very core is the relationship between secondary and main line.

Might work -any idea what the difference would be between leasing costs and the cost of buying and maintaining the trains? Probably would take too long to implement though, so wouldn't release the cash this year.

The cost of buying isn't really such an issue as the Government has to invest anyway. As for maintenance, I'm not sure, but it was the model for almost every railway up until the 1990's, private or public, so it must have something going for it.

 

[67018]

It's not the same pot. Not only will the revenue be sliced when it's re-routed via a third party and then the Government, but the railway will also lose control. What would have been the railway's own resource to allocate, suddenly comes via the Government with all of its strings attached (a noted side-effect of our railway privatisation model).

The irrational fear of cross-subsidisation should be left as a private sector fixation. The railway, in particular relies on cross subsidy because at its very core is the relationship between secondary and main line.

There's a difference between cross-subsidy of similar activities and widely differing ones, so the secondary/main line comparison doesn't work. Why does cross-subsidy work in the public sector and not the private? - given that its defects are mainly issues of management. And why is the fear irrational, given that it is mainly based on real life examples of organisations messing up their business through doing just that?

I'm not getting into arguments about the privatisation model; strings attached is about political interference and it's a rather perverse situation where 'privatisation' has led to more interference.

The cost of buying isn't really such an issue as the Government has to invest anyway. As for maintenance, I'm not sure, but it was the model for almost every railway up until the 1990's, private or public, so it must have something going for it.

Why is a model appealing because it was used years ago and got replaced? It's just as easy to argue that it must have something wrong with it, to the extent that it was seen as necessary to change it.

Anyway, this has gone a long way off topic. Does anyone have a view as to whether these 'savings' will make any actual difference to the network; shaving the station improvement fund seems to be the main direct change, in which case the railway has arguably got off lightly.

 

[455driver]

...and pay tax on said income streams.

I am sure some 'creative' accounting will ensure that the taxes owed wont amount to much!
As for which Country those taxes are paid to?

 

[Xenophon PCDGS]

But according to the arguments put forward by RUK's capitalist vanguard, why would any railway company want to own a hotel - an activity not directly associated with the operation of a railway ?

In the larger cities of Britain, the Victorians who operated the large railway companies saw this as a normal commercial adjunct to their business, as these hotels were always situated hard by the railway station itself and thus catered for those who travelled by rail and wished to stay where overnight accommodation was required.

Going back somewhat earlier in time, many large establishments were set up by those who operated the stagecoach routes across Britain.

 

[yorksrob]

You'd probably be happier in China then, where the public sector claims to run almost everything.

Who said anything about the public sector running everything? I'm more than happy to recognise that there are some things the private sector can be left to do. The mixed economy has been an established way of doing things for decades.

Unfortunately, from your reaction it appears that you have been conditioned to see any suggestion of a mixed economy as a threat to private enterprise as a whole
--- old post above --- --- new post below ---

There's a difference between cross-subsidy of similar activities and widely differing ones, so the secondary/main line comparison doesn't work. Why does cross-subsidy work in the public sector and not the private? - given that its defects are mainly issues of management. And why is the fear irrational, given that it is mainly based on real life examples of organisations messing up their business through doing just that?

I'm not getting into arguments about the privatisation model; strings attached is about political interference and it's a rather perverse situation where 'privatisation' has led to more interference.



Why is a model appealing because it was used years ago and got replaced? It's just as easy to argue that it must have something wrong with it, to the extent that it was seen as necessary to change it.

Anyway, this has gone a long way off topic. Does anyone have a view as to whether these 'savings' will make any actual difference to the network; shaving the station improvement fund seems to be the main direct change, in which case the railway has arguably got off lightly.

The argument is somewhat academic as I'm sure that if NR had felt it to be beneficial to sell the development off, they would have done so of their own accord, rather than being forced into it by George Osborne. There's no reason why a plum development should be any more of a burden to NR than it would be to the Duke of Westminster.

As for the private sector, I really don't know why they are so allergic to a diversified portfolio as this seems to be a good way of ensuring a steady income. Some of the worst business declines have occurred due to companies putting all of their eggs in the wrong basket (see Marconi and the dot com bubble).

Perhaps the concept of a stable, diversified company runs contrary to the City's renowned instinct for a fast buck and a quick sell off.