NETWORK RAIL is to cut its financial apron strings to the government by announcing it plans to borrow money without state backing for the first time.

Industry executives said the move, confirmed this weekend by Network Rail, marked a big change for Britain’s railways, signalling a shift away from reliance on the state support provided after the collapse of Railtrack five years ago.

It is also significant for the public finances, reducing the likelihood of Network Rail’s £18 billion of borrowings being counted as part of government debt.

Network Rail took over the running of track, signalling and major stations from Railtrack in 2002. It was set up as a company limited by guarantee, without any shareholders, and little chance of borrowing the billions it needed to invest in the network. To fix that funding problem, ministers took the unusual step of providing a written promise that the government would guarantee its loans.

Network Rail has since used the explicit state backing to borrow £18 billion at low rates of interest.

But the guarantee has proved controversial, with critics saying that the government should put Network Rail’s debt on its books.

Government-backed borrowing for other transport schemes, such as the new, high-speed rail link to the Channel tunnel, was recently included.

If Network Rail were to count as part of public borrowing, public-sector debt would rise to £496 billion, dangerously close to the limit set by ministers of 40% of gross domestic product.

Ministers have defended the off-balance-sheet treatment of such debt, saying that Network Rail is a private company not directly controlled by government — an argument likely to be strengthened by independent borrowing.

Network Rail is expected to announce this week that all future loans — it is likely to raise another £3 billion over the next few years — will be done without the guarantee.

Executives say that Network Rail’s finances have recovered to the extent that it can now undertake its own borrowing. The company is forecast to produce a pre-tax surplus this financial year of about £1.3 billion.

“When we took over Railtrack four years ago we took on a company that had gone bust,” a spokesman said. “We have since made dramatic improvements. We have been reviewing our finances and think the time is right to take a step forward.”

The announcement is likely to lead to speculation that Network Rail could eventually be floated, recreating Railtrack. But the company is expected to categorically rule out the issue of shares, saying it is commited to retaining its present status.

Network Rail’s management, led by chairman Ian McAllister,chief executive John Armitt and deputy chief executive Iain Coucher, is generally regarded as having made a good fist of improving train services.

Punctuality is now running at a six-year high, with 86.4% of trains reported on time.

Meanwhile, GNER, the train company that runs intercity services along the east coast between London and Scotland, is understood to be considering a round of job cuts after losing a crucial court case and parting company with its chief executive, Christopher Garnett. The cuts are expected as part of a cost-cutting programme likely to be instigated by Bob MacKenzie, chief executive of Sea Containers, GNER’s owner.

MacKenzie took over as the executive chairman of GNER last week after the departure of the long-serving Garnett.

Sea Containers declined to comment on reports that it planned to sell GNER, but said it would provide an update on the company’s financial position within the next few weeks.

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