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The private sector will continue to play a major role in Labour’s promised state-run Britain’s railways after the party decided against nationalizing the companies that own the thousands of trains that run on the network.
Rolling stock companies (Roscos) operate out of sight of passengers but form the financial backbone of the rail industry and have bought and leased passenger trains to privatized rail operators for the past 30 years.
Passenger train companies spent £3.1 billion – 26 per cent of their total spending – on train leasing in the financial year to March 2023, the latest year for which data is available from industry regulator the Office of Rail and Road.
The Roscos – including Angel Trains, Eversholt and Porterbrook – emerged from rail privatization in the 1990s largely through a series of management buyouts, but have since been sold on to investors including Hong Kong-based CK Hutchison, Allianz and Canada’s Public Sector Pension Investment plank.
A significant number of trains in the UK are also funded through separate private funding initiatives.
On Thursday Labor laid out plans for what it called its “biggest overhaul”. . . In a “generation” of railways focused on nationalizing all passenger train companies, it should win the next general election.
This would result in operators such as Avanti West Coast, Great Western Railway and Govia Thameslink returning to public hands under infrastructure manager Network Rail.
Unions also called for the nationalization of Roscos, calling them a burden on the railway and pointing out that they had paid their owners £1.5 billion in dividends since 2016.
But Labor confirmed its plans to continue using the private sector to fund trains. Louise Haigh, Labour’s shadow transport secretary, said this showed the party’s pragmatic approach to reform. “We are not ideological, we promote cooperation with the private sector.”
Industry executives and analysts said nationalizing the Roscos would have been a far more expensive and complex challenge than that of rail operators. Labor has said it would be cost-neutral to put passenger rail services back into public hands, as this would only happen once contracts expire or a break clause comes into force.
Rosco Rock Rail chief executive Mark Swindell said the industry had injected billions of pounds of pension fund money and money from other institutional investors into the rail industry.
He defended the level of leasing companies’ profits as appropriate. “We are not talking about VC private equity returns, but rather consistent returns commensurate with the risks,” he said.
Roscos also offers international expertise in train procurement and shifts risk from the public to private sector when purchasing assets with a lifespan of 35 years, he added.
“Labor did the sensible thing,” said Roger Ford, industry and technology editor of Modern Railways, a rail trade publication that advised on the privatization of the Roscos in the mid-1990s as part of the broader rail sell-off by the then Conservative government.
“The Roscos have bought and financed new trains and invested billions of pounds. . . If you were to nationalize them, you would be nationalizing trains that have already been bought by the private sector,” he said.
Aside from the upfront costs of purchasing thousands of rail cars, the state would also have to finance future train orders.
The Rail Industry Association, which represents companies in the supply chain including Roscos, said companies had spent £20 billion on new trains since 1995, saving the government initial capital costs.
Ford estimated that the pipeline for new trains in the UK would require £1.5 billion a year in funding, which would continue to be funded by the private sector. “They take care of the investment costs for you. . . If there were no Roscos, the Treasury would have to find the money to buy new trains,” he said.
Porterbrook chief executive Mary Grant said Britain’s railways required “significant investment” over the next 30 years. “We welcome Labour’s commitment to mobilizing private capital to deliver its long-term rail strategy,” she said.
Malcolm Brown, CEO of Angel Trains, said: “Our role and long-term commitment to driving improvements across the UK is vital to delivering a modern, future-ready transport system.”
But senior union officials said Labor’s decision to hand ownership of trains to the private sector meant there was still unfinished business in its fight to reverse 30 years of privatization.
“This announcement. . . should be a first step towards fully integrating the entire railway into public ownership,” said Mick Lynch, general secretary of the RMT.
“It’s time for a railroad fit for the 21st century that serves the public, not privateers and shareholders.”