Saturday, December 31, 2005

Runaway Debt Train

The government's Enron accounting continues:

"GORDON BROWN has secured a £21 billion victory after the Office for National Statistics ruled that the Chancellor does not have to take the Network Rail bailout on his books. The ONS issued a statement showing that it had upheld its controversial classification of Network Rail as a private-sector body despite reforms that have tightened the Government’s control over the railway network’s debts."

As you will know, this outrageous book fiddling has been going on ever since Byers confiscated Rail Track.

"At issue this time was the Railways Act 2005, under which the Department for Transport (DfT) took over the Strategic Rail Authority’s liabilities in relation to its £21 billion support for Network Rail’s borrowing."

Everybody knows that Network Rail debt is effectively government guaranteed- if it wasn't there's no way it would attract AAA ratings, and the financial markets would demand an immense price for taking it, particularly after the Byers grab. As the Chairman of Merrill Lynch EMEA debt capital markets said when the debt was first issued: "Because of the [government]support, Network Rail can be seen as a quasi-sovereign and compared to other high grade public sector credits". In other words, it's UK Government debt in all but name.

Of course, we all know why Gordo wants it off the books- he'd blow his Golden Rule for debt issuance otherwise (see our previous painful posts). But as well as being criminally transparent, it's also expensive. For a start, our debt financing costs are higher because all that artificial structuring and pretence means we're paying more than we would issuing straightforward government bonds.

And then there's the damage it's doing to our railways. In dreaming up and imposing an entirely artificial governance structure involving a non-profitmaking company limited by guarantee, the government has created a shambles. Longtime critic Christian Wolmar says: "It is being increasingly recognised that the whole pretence of NR being in the private sector is costing a lot of money and has led to a situation where it cannot be adequately policed." NR cannot actually do much without consulting their government paymasters and guarantors, but for the purposes of the Enron fiction they must pretend otherwise.

In continuing to classify Network Rail as a private sector entity, and thereby allowing Gordo to keep its debt off balance sheet, the Office for National Statistics is turning itself into the Arthur Anderson of national accounts. True, you can make a technical argument that NR is not under "the control" of government, inasmuch as its directors are in some theoretical sense "independent". But let's get real: you must follow the money, not the organogram. Gordo has gamed the system, just like those good folks at Enron and Worldcom.

The only one who emerges with any credibility is the Comptroller And Auditor General. He may sound like the Witchfinder General, but he was the only official who- to his great credit- refused to play ball. So in his Parliamentary accounts the NR finances are consolidated into government.

It's just that they don't count for Golden Rule purposes.

Picture: Upbeat Recordings


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