Nicola Shaw has recently published her invitation to us all to send in our ideas on how Network Rail should be structured and financed in future.
I will be sending in evidence. My first three conclusions for her are
- As a business with all UK sterling revenues it should not borrow in foreign currencies again
- All the time it remains a nationalised business with a full Treasury guarantee it should be lent money by the government at government rates, borrowed by the government in the gilt market in the normal way.
- It should stop all derivative hedging and trading.
When I first argued that Network Rail should not trade in derivatives in July 2012 it followed their reports acknowledging substantial losses in the year to March 2011, and again in the year to March 2012.
The year to March 2012 saw £409 million of losses in derivatives that were not hedge accounted and a further £45m of such losses in the year to March 2013.
I wrote a letter to the members of Network Rail, the group responsible in those days for the corporate governance and strategy of the business on behalf of the taxpayers who pay the bills. I asked them to explain their derivative strategy and why they thought it was good thing to be doing. My own view was it should be stopped.
Network Rail continued with derivatives, and reported losses of £982 million on them in 2013-14. Their response claimed that although some of their derivatives were accounted as trading, they saw them as a hedge against foreign currency borrowings which for some unknown reason they had chosen in preference to borrowing in pounds, and as a hedge against rising interest rates during a long period of ultra low rates.
Now Network Rail is fully under the control of the Treasury and Department for Transport I am asking again that all open derivative positions be closed down, or matching positions the other way be taken out to stop all future losses on these dangerous instruments. They have had to ask for more taxpayer cash to put up against some of these positions, so they do matter within the budgets of the state.