The Treasury wants to claw back cash raised from asset sales to reduce deficit

Plans by Network Rail to spend the expected £1.8bn proceeds from the sale of surplus land and property on upgrade works have been thrown into disarray, after it emerged the Treasury wants the money to help pay down the deficit.

In the wake of the Hendy Report published 18 months ago, Network Rail planned the sell-off to help fund a revised CP5 development programme of works, which is due to run until 2019 but has been hit by major cost overruns and delays, most notably on the electrification of the Great Western route. It also formed a property company to handle the property and land sales.

However at a meeting of Network Rail’s board it was acknowledged the Treasury now needed the cash raised to go towards paying down the UK’s debt mountain and consequently the client was facing a sizeable funding gap for its planned works.

Minutes of the meeting, held in September last year but which have only just been released, reveal board members noted that the current enhancement programme expenditure “was within the assumptions agreed as part of the Hendy Review and the pressures were being managed”.

But due to the Treasury’s new demand “there was a realistic prospect of a significant shortfall in funding, as [the Treasury was] now requiring the proceeds of the asset disposals programme to count towards deficit reduction thus handicapping Network Rail’s use of the cash to fund rail enhancement schemes”.

The minutes show board members agreeing that Network Rail should not commit to projects it could not afford, and that talks with the Treasury and the Department for Transport to resolve the funding question should continue.

It also resolved to look into exploring what it called “additional loan facilities in order to deliver the CP5 enhancement programme and overall business plan”, the minutes reveal.

A Network Rail spokesperson said: “We have been working closely with colleagues across government to assess the assets we had earmarked to sell following the Hendy Review. This process is ongoing.”