Taxpayers could face costs if space has to be repurchased for engineering works – report

Network Rail failed to act in the interests of tenants and taxpayers when it sold off £1.5bn of railway arches, sacrificing an important asset for short-term gain, according to MPs.

A critical report from the public accounts committee has found that the controversial sale of thousands of arches will also mean future tenants have fewer rights – and existing tenants no longer have an option to extend their leases.

The committee criticised Network Rail and the Department for Transport for not engaging properly with tenants, mainly small business owners, until far too late in the sale process.

The PAC chair, Meg Hillier, said: “Ultimately, government took a short-term decision to sell a profitable asset to plug a funding gap. We remain unconvinced that the sale represents the best value for the public and the public-sector finances in the long term.”

It said tenants suffered great uncertainty and only limited, non-binding commitments were obtained from the new owners, the Arch Company, backed by Blackstone and Telereal Trillium, to protect tenants’ interests.

An earlier National Audit Office report had been critical of how tenants were treated, although it otherwise found that the sale of 5,261 commercial rental spaces on a 150-year leasehold basis to the private consortium was “well conducted” and value for money.

MPs noted it would lose Network Rail at least £80m – potentially £160m – a year in rental income. It could also lead to significant costs for taxpayers should the rail infrastructure manager need to repurchase space for engineering works or upgrades in the future.

The sale makes the new owners the biggest landlord to small businesses in the UK, at the heart of urban communities across England and Wales. Hillier said: “This is another case of government failing to see the big picture. It did not recognise the potential of the arches to further its industrial strategy and support small and medium-sized enterprises.”

The committee called on the DfT and Network Rail to set out what protection, if any, it could offer the tenants.

Play Video 5:21 Death under the arches: the businesses at risk due to rail sell-off - video

Leni Jones, the director of Guardians of the Arches, an organisation representing the former Network Rail tenants, welcomed the report but said: “We fear these measures may not be enough to protect some small businesses which are on the brink of imminent closure.” She said urgent changes were needed to ensure tenants’ rights were protected.

The Arch Company, however, said it had been engaging with tenants openly and responsively, and would within weeks publish a tenants’ charter, setting out how it would practically address their concerns and ensure a diverse mix of businesses remained. In a statement, it said: “Tenants are and will remain at the heart of everything we do.

“As long-term owners, we are investing millions of pounds across the estate, addressing longstanding maintenance issues, recruiting more staff to resolve tenants’ queries and bringing over 360 unoccupied arches back into use for small and medium-sized businesses across the country. We are also working constructively with long-standing small businesses to address any affordability concerns they may have.”

Network Rail was made to sell its property assets in 2015 by the then chancellor, George Osborne, as part of a funding settlement after blowing its budget on overrunning railway upgrades.

The government said: “This sale ensured that Network Rail can continue its long-term investment to improve our railways, and that the diverse, independent businesses in rail arches will continue to thrive.

“The rights of all tenants have been protected, all current agreements fully honoured, and the new owner must work with long-standing small businesses to resolve any financial pressures.”