YorkRailFan
On Moderation
One can fly on an Air Tanker A330 flying for Jet2 during the Summer Season.
-
Our booking engine at tickets.railforums.co.uk (powered by TrainSplit) helps support the running of the forum with every ticket purchase! Find out more and ask any questions/give us feedback in this thread!
Train Leasing Profits Treble, £400,000,000 dividends
- Thread starter DJP78
- Start date
Sponsor Post - registered members do not see these adverts; click here to register, or click here to log in
R
RailUK Forums
Yes, and that's perhaps another example of the modern obsession with PFI where it might have made more sense to own - especially the Voyager that does double duty as the flagship government VIP transport.
At least Airbus can potentially sell the plane when the government no longer wants it. This is still not an option for trains that are heavily customised / built for the unique challenges of GB's rail network, or even specific parts of it. There's that very weird example of HSTs going to Mexico but generally it's kept until actual EOL and off to the metal scrappers.
Indeed. The more the John Major experiment stumbles on, the more apparent it seems to me that an arms length (from Government) organisation that runs the railway and its own rolling stock is needed.
Tetchytyke
Veteran Member
The article references a 41.6% profit margin.
That potentially explains some of the dividends, but doesn’t explain the huge rise in profitability.
I was wondering similar, to be honest.
No money for staff pay rises to be index-linked, but here’s an index-linked guaranteed profit for the ROSCO.
Hmmm. Look at the IEP programme for a jaw-dropping example of what happens when a contemporary alternative approach to leasing conceived by the state is taken. [The only upside is that Hitachi are on the hook for the enormous cost of fixing the metal fatigue failures on these things]
What's the common denominator? That the counterparty (the state) is habitually incapable of doing anything competently and with enough acumen to not end up having rings run around it.
There's nothing wrong with ROSCOs/leasing in principle, essentially the model just distills down to another way of packaging insurance. However, unless they are short term anomalies, profit margins like this are all the evidence you need that the other party to the contract doesn't know what it's doing.
The problem over and again is the DfT. Given the long-term nature of the issue, it really is the DfT rather than governments of whatever stripe. It's a bit like the equivalent of what happens with every government IT project, ever, except on rails.
How anyone thinks putting them really in charge of everything rail via full nationalisation would make things better is hard to comprehend.
What's the common denominator? That the counterparty (the state) is habitually incapable of doing anything competently and with enough acumen to not end up having rings run around it.
There's nothing wrong with ROSCOs/leasing in principle, essentially the model just distills down to another way of packaging insurance. However, unless they are short term anomalies, profit margins like this are all the evidence you need that the other party to the contract doesn't know what it's doing.
The problem over and again is the DfT. Given the long-term nature of the issue, it really is the DfT rather than governments of whatever stripe. It's a bit like the equivalent of what happens with every government IT project, ever, except on rails.
How anyone thinks putting them really in charge of everything rail via full nationalisation would make things better is hard to comprehend.
You'd have to borrow cash at the rate the treasury set, which is usually higher than what is available on the open market.
TfW considered owning its new fleets outright but found leasing was cheaper.
Classic HM Treasury. Making life more expensive and worse dressed up as fiscal prudence and value for money no doubt.
Keep in mind, it's not just TOCs that lease their stock. TfL do it for the Elizabeth Line stock although it's not done through a ROSCO more a sell and leaseback situation since it was to raise money for the Piccadilly Line trains. I think the 1995 stock is leased as well.
Deepgreen
Established Member
Yes - yet another example of the failure of the privatisation model. An unnecessary, profit-making/creaming-off layer of the industry.
Profits of UK’s private train-leasing firms treble in a year
More than £400m paid in dividends in 2022-23 while rest of railway faced cuts and salary freezeswww.theguardian.com
£400 million paid in dividends by rolling stock lease companies, whilst rail workers wage demands ignored
Net profits up from 14.3% to 41.6%
Chief execs on £1m salaries
Last edited:
bib
Member
To quote the ORR document that the stats have come from https://dataportal.orr.gov.uk/media/algdbizg/rail-industry-finance-uk-statistical-release-202223.pdf
Tbh I think the bigger story might be Network Rail spending £4.1bn on interest in the same period.
And for comparison the same section from the 2021-22 version of the report
So it roughly looks like ROSCO dividends were £200m before covid, 100m for the a few years in covid and jumped to 400m in 22/23, which may have been partially to compensate for the covid years. And it appears as if they have managed to hugely cut costs in the last year, or maybe costs were unusally high in 17/18. If you were keen and bored you could go and dig through the various company accounts on Companies House website.
Tbh I think the bigger story might be Network Rail spending £4.1bn on interest in the same period.
Well it is, because the ROSCO just subcontracts this out. They don't employ fitters or have a parts store.
Firstly there are limited numbers of inherited assets still in use. Secondly during privatisation the politicians priced the assets at a price deemed attractive to achieve a sale. Right or wrong it was a political decision, end of. Hindsight cannot be used to undo a legal sale without massive consequences for the country as a place to do business. Finally analogous structures are used in many other industries e.g. aviation.
Increasing the national debt has implications.
Clear and concise, TY.
The last DfT instigated inquiry said not.
Last edited:
GRALISTAIR
Established Member
Indeed. I really am angry about this. Sure, making a profit is OK but something is seriously wrong with the system imho.
Ultimately - The Treasury!
YorkRailFan
On Moderation
Quoted from the Guardian article linked in the original post. The issue is that ROSCOs are raking it in while investing little into new stock and R&D.
Re your last para - nope! Ultimately HMT are subject to political direction just like every Government department.
GRALISTAIR
Established Member
Exactly.
Why do we keep seeing - for example TDNS and rail electrification - "Treasury says no". The treasury seem to act like an unelected government inside a government.
There seem to be a few industries where some people feel it isn't appropriate, the railways being one of those.
Iskra
Established Member
No, but it would be a lot better for us all if it was the state doing so.
I’m also not convinced the profit is proportional to the value added by the ROSCO’s.
HMT's role is to critically challenge expenditure and, self-evidently, ensure that budgets aren't exceeded.
Tetchytyke
Veteran Member
Nothing wrong with making a profit where that profit accurately reflects the level of expertise and capital risk that their work merits.
Plenty wrong with price gouging. And, respectfully, a profit margin of 41.6% falls into the latter category, particularly so given the complete lack of risk attached to the ROSCO.
Because it suits the politicians to blame the civil servants.
Sounds about right.... They can't blame the EU anymore....
Economic theory suggests that if there are extraordinary profits being made, more entrants to the market will appear, reducing those profits.
What is funny is that where there are void periods for rolling stock, people cry out for that rolling stock to enter service, ensuring that the ROSCOs do have their risk diminished.
Tetchytyke
Veteran Member
…unless there are artificial barriers to such entry. As in the case of the ROSCOs.
I’m firmly of the opinion that this isn’t a failed system though, this is working exactly how the Conservatives intended for it to work. Trebles all round.
This was not the privatisation intention, which was that the leasing companies would compete with nationally standardised rolling stock, like going to Hertz or Avis at the airport and they offer standard cars. Even the initial stock was of course standardised BR. It was the rail industry's own engineers who decided not to continue this but to have everything bespoke, mismatched couplers, all of that.
People just don’t want to see large/excessive profit margins being made by private sector companies which are being subsidised by the taxpayer. The margins made by TOCs are far, far lower than those earned by ROSCOs.
The UK rolling stock market isn’t a free market, it’s been deliberately set up to be a totally artificial one.
Another example of how the market is failing to properly cater for demand. We’ve had newish fleets of trains stored/scrapped in some areas, while other parts of the network are suffering from a chronic lack of rolling stock.
Your last para carefully ignores the fact that most of the stock that you refer to is electrically powered whereas most of the shortages are in areas/lines with no sparks.
But it’s still an example of market failure. In an ideal world that stock could be used elsewhere/sold abroad, and the proceeds used to fund more appropriate stock.
We all know why that isn’t possible, given the bespoke nature of UK rolling stock, but equally we shouldn’t pretend the UK rolling stock market is somehow subject to free market forces.
GRALISTAIR
Established Member
Is there? We've had loads of new entrants in the past 10 years.
New ROSCOs aren't that difficult, have a source of cash and be the cheapest next time a TOC procures more trains.