UK defence ties meet financial challenge on railtrack

BBC Newsnight

Boris Johnson could change his mind about railtrack later, says George Osborne.

A decision on downgrading the company by the Government could be made at the same time as UK-US defence talks begin in Washington DC.

Talks with US president Donald Trump’s administration are described as extremely important.

Mr Johnson’s government wants to reduce railtrack’s debt to meet EU competition regulations.

Railtrack’s debt stood at £1.15bn when he took over, but Mr Johnson’s government has asked the company to come up with a savings plan by early March.

Ahead of the talks, which will be led by Infrastructure minister Tobias Ellwood, the company is hoping to persuade the Department for Transport of its proposals.

Railtrack, which operates the East Coast mainline in the UK, is a subsidiary of Infrastructure Management Holdings, a group set up by businessman Charles Dunstone in 2000.

Its business model depends on raising debt on the stock market, in turn paying its pension scheme.

That means its balance sheet has been hit by the slow rise in railway fares, which are capped by government.

Train operators and unions have been pushing for fares to rise by 2.5% a year for the past three years.

Earlier this month, Mr Johnson said that railtrack “cannot run a railway like that”.

“The railway business model simply is not sustainable under current trading conditions,” he added.

Railtrack is offering candidates what it describes as “portfolio solutions” to help it refinance its debt with no threat of closing operations.

If the Government agrees, it says it would allow it to drop the debt on the balance sheet, which would make them more attractive for investment.

Mr Ellwood is to visit the US in the first few days of February.

Brexit negotiator Michel Barnier will be in Washington DC at the same time.

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