Train Leasing Profits Treble, £400,000,000 dividends

[31160]

TfL owns most of their stock apart although I think the Class 378 were previously leased but they bought them last year.

I think they did own the 345s until the government said no more money until you sell it to a offshore tax haven company lol (not)

 

[Energy]

I think they did own the 345s until the government said no more money until you sell it to a offshore tax haven company lol (not)

Not quite, the 345s were sold and leased back to pay for new Picadilly line trains.

TfL occasionally move their finance around depending on what they can get cheapest, presumably for the 378s they reconned they refinance them cheaper by procuring the finance themselves.

 

[The exile]

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.

But is it really their job to do that unless they’re asked to?

 

[DJP78]

But is it really their job to do that unless they’re asked to?

No it’s not their job. They are a profit making enterprise. Their job is to do the best for their shareholders and investors.

One might argue, shareholders being prioritised over re-investment back into the railways.

I’m not saying there’s a right or wrong method of funding rolling stock.

I just don’t subscribe to the notion that it’s fair, reasonable or in the interests of the railway, taxpayers and paying passengers to see such exorbitant sums taking flight from the railways.

This is a symptom of political incompetence via the DfT for allowing this to happen. Clearly the DfT haven’t done any DD on the contracts or attempted to challenge the ROSCO’s.

I’m yet to see a credible contribution from anyone that can unequivocally justify profits of 41%, irrespective of whether an opponent or proponent of ROSCO’s.

 

[YorkRailFan]

But is it really their job to do that unless they’re asked to?

Post #94 explains it better than I could.

 

[Stephen42]

No it’s not their job. They are a profit making enterprise. Their job is to do the best for their shareholders and investors.

One might argue, shareholders being prioritised over re-investment back into the railways.

I’m not saying there’s a right or wrong method of funding rolling stock.

I just don’t subscribe to the notion that it’s fair, reasonable or in the interests of the railway, taxpayers and paying passengers to see such exorbitant sums taking flight from the railways.

This is a symptom of political incompetence via the DfT for allowing this to happen. Clearly the DfT haven’t done any DD on the contracts or attempted to challenge the ROSCO’s.

I’m yet to see a credible contribution from anyone that can unequivocally justify profits of 41%, irrespective of whether an opponent or proponent of ROSCO’s.

Looking at the ORR data which the story is based on, profits are typically 10% to 20%. They are using profit and loss after tax which includes the finance cost as part of the expenses. The most recent year the finance cost is negative as they made money from financing activities, this accounts for the majority of the difference. Profit on a cost of sales basis is consistent across the entire period including the most recent year.

The financing cost change could be due to the market shocks in that period. The ROSCOs may have held longer term fixed agreements which would have shot up in value as shorter term rates climbed. Replacing the finance cost with the one from the previous year the profit would have been 23% and the income tax timing might lower it further still.

 

[Clarence Yard]

I’m beginning to think the ORR figures in table 7275 are a bit weird. If you look through the annual accounts of the big 3 for the year ending 31/12/22, I don’t see the reduction in costs that the ORR have. I wonder exactly how they have summed up those cost figures.

The dividends for the 3 look about right and I know that when the ROSCOs were set up, they were looking for a rate of return of about 15%.

What has helped the dividend position is the reduction in new build activity. Instead of having to invest, they have released surplus funds to shareholders in the form of dividends.

That isn’t to say that they don’t invest at all and they have also been active in acquiring stakes in other organisations, the recent Porterbrook/Brodies deal being a good case in point.

 

[LNW-GW Joint]

Are shares in these train leasing companies openly traded on the stock markets?

They were, but they've been through several hands since HMG sold them off.
Various banks have owned one or more along the way, but generally have sold on to infrastructure investors and operators.
Porterbrook is owned by Allianz, EDF and AiMco of Canada.
Angel is owned by Australian and Canadian infrastructure investors (it was part of RBS).
Eversholt is owned by Hong Kong investors (was owned by HSBC). One of the HK parents also owns the Three telecom network.
There are other, newer Roscos like Beacon Rail and Rock Rail with different heritage who do not operate ex-BR stock.

 

[6Gman]

Nothing wrong with making a profit.

I would also point out that "shareholders" receiving dividends are not all tax-exiled billionaires but also entities such as pension funds and insurers, either directly or indirectly.

 

[Adrian1980uk]

The biggest issue is the leasing terms, any other fleet contract would be to provide a fixed number of vehicles a day and be responsible for maintenance of said vehicles. In train terms to meet a contract of providing 40 Emu's a day the ROSCO would need 45 to allow for maintenance etc. The IEP is a prime example of how not to do it, if a ROSCO was involved the DFT could have had the requirement of 100 trains a day so the ROSCO takes all the risk of reliability / maintenance.

Currently as the trains are individually spec’d and for all intents and purposes the TOCs train, maintenance/ cover for accident damage etc all the TOCs risk, the ROSCO is just like a bank, lending the money to buy the fleet.

 

[hwl]

I would also point out that "shareholders" receiving dividends are not all tax-exiled billionaires but also entities such as pension funds and insurers, either directly or indirectly.

Indeed - Rock rail is a consortium of UK pension funds.

 

[domcoop7]

If you have a wholly and exclusively public sector railway, run as a public service in the way the police, or your local council is run, then ROSCOs are pointless. However, this would be unusual. In the UK even functions such as schools, the NHS, Highways England, etc are not run in that way.

Your local High School, for example, doesn't just employ teachers and send the bill to the government. It has a budget, and it has to allocate spending between capital spending and day to day spending, just like a company does. Same with NHS trusts, etc.

In simple accountancy terms, it makes no sense to say - for example - a school costs £4 million to run in 2024 and £300,000 to run in 2025, when the 2024 figure includes the cost of buying a new sports hall and fixing the roof. Firstly, that sports hall and that roof will last a long time and secondly the school wouldn't function without having its buildings. So in reality the costs on things like land and buildings are not just part of the costs during the year when they are bought and built - they are costs that apply throughout the lifetime of the assets. Hence the difference between capital expenditure and revenue expenditure.

So your capital expenditure is spread across a number of years (even though you actually spend it only during the first year) for accounting purposes.

If you are a TOC running on a business basis - whether or not you are state owned or private sector - the way this is done affects your profitability. In particular for private sector TOCs it also affects your tax, because the current tax code does not allow you to offset the capital spending against tax. Instead you are only entitled to what are called "capital allowances". So if you spend £10 million on something that lasts 10 years, and make £1.5 million in revenue each of those ten years, a common sense view would say you'd be able to split your £10 million costs over the 10 years and pay tax only on the £500,000 difference. But you can't. You can only claim a certain percentage depending on very complicated rules and then make a final adjustment when the asset is sold or scrapped.

On the other hand if you lease an asset for £1 million a year that is counted as expenditure and you only pay tax on the £500,000. So unsurprisingly leasing is very common in the business world for everything from photocopiers to vans to offices to aircraft. There are tradeoffs of course, but a system with private sector TOCs is going to have leasing companies. A system with public sector TOCs is probably going to have leasing companies, both because they prepare accounts in the same way as a private sector company would and also because the debt incurred in buying the asset in the first place does not count as public sector borrowing. It is not like buying or renting a house in a rising market (like the UK) where a guy at the pub says "you should buy a house not rent it otherwise it's dead money".

The next issue is "gearing". If your business (whether public sector or private sector) produces £10 of benefit for every £5 you put in, if you put in £5 million, you'd get £10 million out. If, however, you had to spend £4 million of the £10 million on buying something, you'd only get £2 million out. So you don't. You borrow the £4 million to buy your asset and get £10 million out each year, less the cost of borrowing (interest) and capital repayment. Every pound spent upfront on buying things that you could actually borrow and pay back over time is a pound you aren't spending on something useful today.

So that leads to the next issue. Who can borrow the money more cheaply and efficiently? If you're the USSR, Venezuala, Zimbabwe or the Liverpool City Region, then the answer is the government. But in reality some government debt is linked to interest rates and some to inflation both of which have been extremely high as most people know. Consequently the government is paying interest over 4% on national debt in the last year. The more the government borrows, the higher the interest gets, and current government debt is over 100% of the entire economic output of the country and the highest it's been since the 1960s (when we were paying off the costs of World War II). The government still borrows £85 billion a year more than its budget - and due to high inflation and interest-linked bonds last year had to pay £112 billion on interest. The only saving grace is that due to Covid every government is in a similar position, so we don't really stand out - if we did it would be begging bowl to the IMF to rescue us time.

As we aren't the USSR, even if the government borrows the money, someone's getting interest on it and making a profit out of the deal. There is a cost involved in administration and the like. And due to the pressures referred to above, there is every likelihood that the government would say "OK we will fund purchasing of 1,000 trains, but we aren't paying to replace the local hospital in XYZ town this year". It's not a magic money tree. Indeed the most likely answer, as mentioned up-thread from BR years is "No, we aren't funding 1,000 trains, you can have 150 and go and buy some old Leyland National bus bodies and stick train wheels on them if you want anything more".

A private sector lender can borrow what it can, without any of those considerations. It can also sell and re-sell and leverage its future income stream, buy futures, take gambles on exchange rates, do deals with manufacturers, etc., etc. A private sector lender also can go bankrupt altogether and its creditors be left with pennies on the pound and shareholders left with nothing. Railtrack PLC tells us that the railway is not immune from that.

And sometimes, no doubt linked to the issues relating to interest rates and inflation, the private sector lender can make a huge profit as well.

But in all honesty so what? If they provide the service required of them, and its cheaper than borrowing by the state (as Transport for Wales discovered), and it isn't subject to government pressure due to high public sector debt, what is the issue? You choose your poison.

Do you want to get a set number of trains provided at a set price that you can plan for over a set period of time and which is tax efficient and / or allows a reliable prediction of the cost of the service? But someone, somewhere might make too much money off it for your liking?

Or do you want to beg the government to prioritise your plans for trains over a thousand other priorities and risk having them come back in three years time and decide it's too expensive and transfer the trains elsewhere and it be possibly more expensive and not get approved as desired (if at all)?

They're the options. The option of "the government gives us everything we want, but because evil ROSCO barons aren't making a profit all drivers and guards get an immediate 70% payrise" does not exist.

 

[eldomtom2]

As we aren't the USSR, even if the government borrows the money, someone's getting interest on it and making a profit out of the deal. There is a cost involved in administration and the like. And due to the pressures referred to above, there is every likelihood that the government would say "OK we will fund purchasing of 1,000 trains, but we aren't paying to replace the local hospital in XYZ town this year". It's not a magic money tree. Indeed the most likely answer, as mentioned up-thread from BR years is "No, we aren't funding 1,000 trains, you can have 150 and go and buy some old Leyland National bus bodies and stick train wheels on them if you want anything more".

But I don't see how ROSCOs in anyway solve this problem, since the government is still paying the rental costs they can just say "no, we aren't giving you the extra £xxx per year leasing brand new trains would cost".

 

[43066]

I would also point out that "shareholders" receiving dividends are not all tax-exiled billionaires but also entities such as pension funds and insurers, either directly or indirectly.

Bu the argument isn’t against making profits per se, it’s about excessive profits which are being underwritten by subsidy, for essentially zero commercial risk (many ROSCOs are owned by financial services groups, so these profits have flowed straight into city institutions). TOCs have always made far smaller % margins than ROSCOs.

I’m not a believer in conspiracy theories but it’s difficult not to have some sympathy for the suggestion upthread that the current arrangements are working as intended when they were set up, and it’s clear that the government benefits from the fact that they’re “below the radar” as far as the general public is concerned.

They're the options. The option of "the government gives us everything we want, but because evil ROSCO barons aren't making a profit all drivers and guards get an immediate 70% payrise" does not exist.

That’s a complete strawman argument, as nobody on the thread has suggested that. What people have pointed out is that the government has ignored the situation with ROSCOs (they could perhaps have insisted on a change to leasing payment schedules during Covid), but have imposed damaging cuts on the rest of the railway industry to “protect the taxpayer”, that have destroyed reliability, including (but not limited to) preventing a negotiated settlement of the longest running industrial dispute in the industry’s history.

The rest of your post appears to making a tortuous argument that the only possible solution regarding rolling stock funding is the status quo of highly profitable ROSCOs, because there’s no magic money tree, and we aren’t the USSR. That seems pretty dubious, and belies a certain political agenda.

 

[yorksrob]

If you have a wholly and exclusively public sector railway, run as a public service in the way the police, or your local council is run, then ROSCOs are pointless. However, this would be unusual. In the UK even functions such as schools, the NHS, Highways England, etc are not run in that way.

Your local High School, for example, doesn't just employ teachers and send the bill to the government. It has a budget, and it has to allocate spending between capital spending and day to day spending, just like a company does. Same with NHS trusts, etc.

In simple accountancy terms, it makes no sense to say - for example - a school costs £4 million to run in 2024 and £300,000 to run in 2025, when the 2024 figure includes the cost of buying a new sports hall and fixing the roof. Firstly, that sports hall and that roof will last a long time and secondly the school wouldn't function without having its buildings. So in reality the costs on things like land and buildings are not just part of the costs during the year when they are bought and built - they are costs that apply throughout the lifetime of the assets. Hence the difference between capital expenditure and revenue expenditure.

So your capital expenditure is spread across a number of years (even though you actually spend it only during the first year) for accounting purposes.

If you are a TOC running on a business basis - whether or not you are state owned or private sector - the way this is done affects your profitability. In particular for private sector TOCs it also affects your tax, because the current tax code does not allow you to offset the capital spending against tax. Instead you are only entitled to what are called "capital allowances". So if you spend £10 million on something that lasts 10 years, and make £1.5 million in revenue each of those ten years, a common sense view would say you'd be able to split your £10 million costs over the 10 years and pay tax only on the £500,000 difference. But you can't. You can only claim a certain percentage depending on very complicated rules and then make a final adjustment when the asset is sold or scrapped.

On the other hand if you lease an asset for £1 million a year that is counted as expenditure and you only pay tax on the £500,000. So unsurprisingly leasing is very common in the business world for everything from photocopiers to vans to offices to aircraft. There are tradeoffs of course, but a system with private sector TOCs is going to have leasing companies. A system with public sector TOCs is probably going to have leasing companies, both because they prepare accounts in the same way as a private sector company would and also because the debt incurred in buying the asset in the first place does not count as public sector borrowing. It is not like buying or renting a house in a rising market (like the UK) where a guy at the pub says "you should buy a house not rent it otherwise it's dead money".

The next issue is "gearing". If your business (whether public sector or private sector) produces £10 of benefit for every £5 you put in, if you put in £5 million, you'd get £10 million out. If, however, you had to spend £4 million of the £10 million on buying something, you'd only get £2 million out. So you don't. You borrow the £4 million to buy your asset and get £10 million out each year, less the cost of borrowing (interest) and capital repayment. Every pound spent upfront on buying things that you could actually borrow and pay back over time is a pound you aren't spending on something useful today.

So that leads to the next issue. Who can borrow the money more cheaply and efficiently? If you're the USSR, Venezuala, Zimbabwe or the Liverpool City Region, then the answer is the government. But in reality some government debt is linked to interest rates and some to inflation both of which have been extremely high as most people know. Consequently the government is paying interest over 4% on national debt in the last year. The more the government borrows, the higher the interest gets, and current government debt is over 100% of the entire economic output of the country and the highest it's been since the 1960s (when we were paying off the costs of World War II). The government still borrows £85 billion a year more than its budget - and due to high inflation and interest-linked bonds last year had to pay £112 billion on interest. The only saving grace is that due to Covid every government is in a similar position, so we don't really stand out - if we did it would be begging bowl to the IMF to rescue us time.

As we aren't the USSR, even if the government borrows the money, someone's getting interest on it and making a profit out of the deal. There is a cost involved in administration and the like. And due to the pressures referred to above, there is every likelihood that the government would say "OK we will fund purchasing of 1,000 trains, but we aren't paying to replace the local hospital in XYZ town this year". It's not a magic money tree. Indeed the most likely answer, as mentioned up-thread from BR years is "No, we aren't funding 1,000 trains, you can have 150 and go and buy some old Leyland National bus bodies and stick train wheels on them if you want anything more".

A private sector lender can borrow what it can, without any of those considerations. It can also sell and re-sell and leverage its future income stream, buy futures, take gambles on exchange rates, do deals with manufacturers, etc., etc. A private sector lender also can go bankrupt altogether and its creditors be left with pennies on the pound and shareholders left with nothing. Railtrack PLC tells us that the railway is not immune from that.

And sometimes, no doubt linked to the issues relating to interest rates and inflation, the private sector lender can make a huge profit as well.

But in all honesty so what? If they provide the service required of them, and its cheaper than borrowing by the state (as Transport for Wales discovered), and it isn't subject to government pressure due to high public sector debt, what is the issue? You choose your poison.

Do you want to get a set number of trains provided at a set price that you can plan for over a set period of time and which is tax efficient and / or allows a reliable prediction of the cost of the service? But someone, somewhere might make too much money off it for your liking?

Or do you want to beg the government to prioritise your plans for trains over a thousand other priorities and risk having them come back in three years time and decide it's too expensive and transfer the trains elsewhere and it be possibly more expensive and not get approved as desired (if at all)?

They're the options. The option of "the government gives us everything we want, but because evil ROSCO barons aren't making a profit all drivers and guards get an immediate 70% payrise" does not exist.

It's not really a saving if you have to continue paying leasing charges on an asset that has depreciated. It's a PFI on wheels.

 

[coppercapped]

But I don't see how ROSCOs in anyway solve this problem, since the government is still paying the rental costs they can just say "no, we aren't giving you the extra £xxx per year leasing brand new trains would cost".

Which only goes to show that you haven't understood the previous arguments. Once again, the point about the private sector finance supplying the cash to purchase new trains is that this large lump sum is not subject to vagaries of government policy. Both quantities and timing of government supplied capital has and does change and in many cases mean that investments are either not done at an optimal time or are cut back. See, for example, HS2...

British Airways wanted to buy a quantity of the then new Boeing 747-400 aircraft in the early 1980s and the Treasury baulked at the total amount it would have to fork out. This was the proximate reason the airline was privatised in 1987 so giving it access to private finance. It could then buy the aircraft and remain competitive in international markets.

If there is no international competition then delays in supplying funds to national bodies is not a matter of economic survival of the business but simply lead to slowly decaying services or increasing costs to the user. See school roofs, outdated hospitals and so on. An infrastructure example of such delays on the railways was the extension of the electrification from Weaver Junction to Glasgow. If BR had been allowed access to private sources of capital in 1969/70 then the four year delay which occurred could have been avoided so avoiding the costs of rebuilding the electrification teams, diesel operation north of Preston with the avoidable costs of locomotive changes, and the loss of four years of increased revenue from faster trains. The same thing happened with the East Coast electrification northwards from Hitchin, in this case there was a ten year delay.

This has been repeated in rolling stock acquisition. BR wanted to buy more HSTs than the number for which the Treasury would release the monies. BR original envisaged more Networkers for Network South East and Turbo trains for the Thames Valley and Chiltern routes but didn't get them hence the overcrowding seen when two or three coach trains ran on the peak period services.

If an operator can acquire new rolling stock in a timely manner and so reduce operating costs by, for example,

• avoiding the down time needed to replace cast iron brake blocks
• reducing traction electricity consumption by the use of regenerative braking
• avoiding the maintenance costs of electro-mechanical control gear
• avoiding the costs connected with trying to source obsolete spare parts

or increase income earlier by offering

• more attractive/faster services
• more creature comforts such as air conditioning

then these factors will outweigh any increase in leasing costs. In any event leasing costs make up only a part of the total costs of train operation.

Theoretically the cost of the train would be lower if the Treasury supplied the money in the form of a grant. But in practice it doesn't work like that, there is never enough money and it is always late. Leasing assets means that you can have what you want, when you need it. This is valuable.

It's not really a saving if you have to continue paying leasing charges on an asset that has depreciated. It's a PFI on wheels.

It is clear that you have failed to understand the difference between a financial lease and an operating lease.

 

[yorksrob]

It is clear that you have failed to understand the difference between a financial lease and an operating lease.

We still end up paying more over the lifetime of the asset.

 

[eldomtom2]

Which only goes to show that you haven't understood the previous arguments. Once again, the point about the private sector finance supplying the cash to purchase new trains is that this large lump sum is not subject to vagaries of government policy. Both quantities and timing of government supplied capital has and does change and in many cases mean that investments are either not done at an optimal time or are cut back. See, for example, HS2...

I don't think you've understood my point at all. The point is that private ROSCOs trade buying trains upfront for leasing them - but the money to lease them is still coming from the government.

I'm also interested to hear how you think private financing of electrification would work!

 

[coppercapped]

We still end up paying more over the lifetime of the asset.

You have still not understood.

If the government supplies you with the cash to buy the assets it can do so in one of two ways:

• it can give you the money as a grant (which does not need to be repaid) or
• it can advance you the money in the form of a loan in which case you will be making a regular payment to the Government until you have paid off the sum advanced.

For multi-million pound outlays on rolling stock the first alternative will not happen. So you will anyway be making lease payments, only to the government rather than a finance house. Oh, and by the way on top of the payments for the capital cost you will also be paying the interest on the borrowed money over the lifetime of the loan regardless of who supplied the money. When the loan has been paid off the ownership of the asset returns to you and you will then be responsible for the costs incurred in keeping this asset working for the next twenty years. The asset is never 'free', it will always cost you money.

There is always a delay between the time when the need for asset is identified and the time when the money becomes available - in the case of governments and the civil service this can be in the order of years whereas arranging finance privately can be done in months.

So, which would you prefer? Having the assets now, when you need them with all the associated benefits, or getting only some of them (because the government only advanced what it thinks it can afford which is not as much as you need) maybe a year or more late. During this delay you will be spending money on keeping the old assets working the cost of which should be added to the lower rate of interest you think you will get from the government. Government money is not necessarily cheaper.

 

[yorksrob]

You have still not understood.

If the government supplies you with the cash to buy the assets it can do so in one of two ways:

• it can give you the money as a grant (which does not need to be repaid) or
• it can advance you the money in the form of a loan in which case you will be making a regular payment to the Government until you have paid off the sum advanced.

For multi-million pound outlays on rolling stock the first alternative will not happen. So you will anyway be making lease payments, only to the government rather than a finance house. Oh, and by the way on top of the payments for the capital cost you will also be paying the interest on the borrowed money over the lifetime of the loan regardless of who supplied the money. When the loan has been paid off the ownership of the asset returns to you and you will then be responsible for the costs incurred in keeping this asset working for the next twenty years. The asset is never 'free', it will always cost you money.

There is always a delay between the time when the need for asset is identified and the time when the money becomes available - in the case of governments and the civil service this can be in the order of years whereas arranging finance privately can be done in months.

So, which would you prefer? Having the assets now, when you need them with all the associated benefits, or getting only some of them (because the government only advanced what it thinks it can afford which is not as much as you need) maybe a year or more late. During this delay you will be spending money on keeping the old assets working the cost of which should be added to the lower rate of interest you think you will get from the government. Government money is not necessarily cheaper.

I would rather a loan, that eventually gets paid off and leaves me with an asset, than a lease that never ends.

This is what it boils down to.

 

[coppercapped]

I don't think you've understood my point at all. The point is that private ROSCOs trade buying trains upfront for leasing them - but the money to lease them is still coming from the government.

Even if the government bought the trains - then the money still comes from the government, so what is your problem? Is it just that you don't like private finance...?

Anyway only that proportion of the lease payments which comes from the government's subsidy to the TOC is in question. If, for arguments sake this is now 50% of the TOCs' costs then only half comes from the government, the rest comes from the farebox.

I'm also interested to hear how you think private financing of electrification would work!

There have been several suggestions on how this could work, for example for electrifying the line to Hull from Doncaster an/or Temple Hirst via Selby, the users would pay a surcharge for using the wires added to the cost of the electricity. I agree such an undertaking is not simple but, as is clear from the context, I was using the example of the Weaver Junction to Glasgow to show the pernicious effects of the delays inherent in the supply of funds by governments. Cutting delays from years to months would more than cover any perceived increase in lease payments which may be incurred by the use of private finance.

I would rather a loan, that eventually gets paid off and leaves me with an asset, than a lease that never ends.

This is what it boils down to.

This is like talking to a brick wall...

Even if you end up with an asset after you have paid of the finance lease you will still be paying to keep the asset in working order for as long as you keep it. Trains need quite a lot of continuing engineering work so you will need an engineering staff. You will pay for these.

I cannot see the difference in paying to do the work yourself during this period or paying someone else to do the work for you. Note however that if you only have 10 items of this asset and the 'someone else' has 100 you may well find that they can do it more cheaply that you can.

 

[yorksrob]

This is like talking to a brick wall...

Even if you end up with an asset after you have paid of the finance lease you will still be paying to keep the asset in working order for as long as you keep it. Trains need quite a lot of continuing engineering work so you will need an engineering staff. You will pay for these.

I cannot see the difference in paying to do the work yourself during this period or paying someone else to do the work for you. Note however that if you only have 10 items of this asset and the 'someone else' has 100 you may well find that they can do it more cheaply that you can.

Not really. Railway companies have been looking after rolling stock for centuries. What makes you believe that suddenly John Major had a better answer than centuries of established railway practice ?

You must realise that every time an extra party is added to a transaction, there is an extra cost. An extra "cut" to be made from the revenue.

You must realise that every time something is put into a contractual relationship, costs are fixed and flexibility to respond to actual costs on the ground is lost.

You must realise that private sector intermediaries are able to hide behind commercial sensitivity and avoid public scrutiny of costs that the public sector would be unable to.

Or perhaps you don't.

 

[coppercapped]

Not really. Railway companies have been looking after rolling stock for centuries. What makes you believe that suddenly John Major had a better answer than centuries of established railway practice ?

OK, so the chief mechanical engineer's department did all this product support work for free? That they were only paid for their design work for new products?

You must realise that every time an extra party is added to a transaction, there is an extra cost. An extra "cut" to be made from the revenue.

No, not necessarily true.

You must realise that every time something is put into a contractual relationship, costs are fixed and flexibility to respond to actual costs on the ground is lost.

If you've signed up to a contract like this I'm not surprised that you are disappointed.

You must realise that private sector intermediaries are able to hide behind commercial sensitivity and avoid public scrutiny of costs that the public sector would be unable to.

BR was very adept at 'hiding' costs by charging things as 'overheads' which started to become individually identifiable with sectorisation and more so with privatisation. However the way that the DfT has managed the passenger franchises over the past decade or more some of this granularity has been lost.

Not proven.

Or perhaps you don't.

No, because you have only addressed part of the problem.

H L Menken (1880-1956) is relevant here

There is always an easy solution to every problem - neat, plausible, and wrong.

 

[yorksrob]

OK, so the chief mechanical engineer's department did all this product support work for free? That they were only paid for their design work for new products?

No, but since they were employed by the railway company they wouldn't have had their own set of management, admin and shareholders to pay as well.

No, not necessarily true.

Really, so a third party will provide rolling stock out of the goodness of their own heart ?

If you've signed up to a contract like this I'm not surprised that you are disappointed.

Hey, it's the railway industry that's signed up to leasing contracts that have apparently yielded tripple profits for not a lot of added value, not me. That suggests that these contracts aren't particularly responsive to costs. Perhaps your expertise would be better spent advising TOC leasing departments.

BR was very adept at 'hiding' costs by charging things as 'overheads' which started to become individually identifiable with sectorisation and more so with privatisation. However the way that the DfT has managed the passenger franchises over the past decade or more some of this granularity has been lost.

Not proven.

BR and its sectors didn't have commercial sensitivity to hide behind.

It's not really a surprise that it is "not proven" if one can't examine the books.

No, because you have only addressed part of the problem.

H L Menken (1880-1956) is relevant here

the quote is the perfect epitaph for the ill thought out, half-baked privatisation experiment.

 

[eldomtom2]

Even if the government bought the trains - then the money still comes from the government, so what is your problem? Is it just that you don't like private finance...?

The point is that the idea that ROSCOs bypass the government only makes sense if you assume governments will happily sign off on increased subsidies but not on one-time capital cost, and that furthermore this is unchangeable.

Anyway only that proportion of the lease payments which comes from the government's subsidy to the TOC is in question. If, for arguments sake this is now 50% of the TOCs' costs then only half comes from the government, the rest comes from the farebox.

Why is the farebox relevant?

There have been several suggestions on how this could work, for example for electrifying the line to Hull from Doncaster an/or Temple Hirst via Selby, the users would pay a surcharge for using the wires added to the cost of the electricity.

Yet as far as I'm aware there has not been a single example of any such project happening anywhere in the world.

 

[43096]

This is like talking to a brick wall...

It is... but I've long since given up hoping that many others would grasp the concepts of it.

Not really. Railway companies have been looking after rolling stock for centuries. What makes you believe that suddenly John Major had a better answer than centuries of established railway practice ?

There's also been leasing involved for many, many years. Why is train leasing increasingly common in mainland Europe - there are some very big fleets owned by the likes of ELL, Railpool, Alpha, Akiem, Beacon et al. Are all their customers wrong?

 

[Clarence Yard]

The point is that the idea that ROSCOs bypass the government only makes sense if you assume governments will happily sign off on increased subsidies but not on one-time capital cost.

That’s exactly why the ROSCOs came into being. Furthermore, because government TOCs are just cash flow entities, you need to avoid large changes in day to day costs and maintaining traction and rolling stock is potentially a very “lumpy” cost line.

As someone who had traction and rolling stock in his books of account in BR days (I was an Area Finance Manager in the M&EE function, later a Production FM in a sub sector), I am really glad I am not having to pay for the chaos that is the IET contract and all those emerging liabilities. I had class 50 locos, that was bad enough to budget for!

Funding rolling stock, as I have stated before, is not always done cheapest via the state financial arrangements. BR didn’t get its stock at nil interest and my predecessors often complained about not being allowed to seek external finance and having to pay inflated Treasury rates. That wasn’t only a rail issue, most nationalised industries suffered.

Repeating an earlier post, I have looked at the 2022 accounts for the big three ROSCOs and I can’t see where the ORR get their increased profits from. I can see and understand the dividends but those P&L changes from 2021 - I have no idea how the ORR got to those figures. I may ask them to clarify because they look very odd.

 

[Thirteen]

I think a mix of buying outright and leasing stock would be the best way forward.

 

[eldomtom2]

That’s exactly why the ROSCOs came into being.

I note that you removed the last section of my sentence...

 

[Clarence Yard]

I thought that was obvious. Everything is changeable - it depends on the political mood and how the Government wants to finance its business.

But Government funding railway rolling stock isn’t necessarily the cheapest way of paying for it, both in initial cost and the lifetime maintenance liability.