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The private sector will continue to play an important role in Labour’s promised state-owned UK railways after it decided against nationalising the companies that own the thousands of trains that run on the network.
Rolling stock companies, or roscos, operate out of sight of passengers but are the financial backbone of the rail industry, and have spent the past 30 years buying passenger trains and leasing them to privatised train operators.
The passenger train companies spent £3.1bn — 26 per cent of their overall expenditure — on train leases in the financial year ending March 2023, the latest year for which data from industry regulator, the Office of Rail and Road, is available.
The roscos — including Angel Trains, Eversholt and Porterbrook — emerged from rail privatisation 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 Board.
A significant number of trains in the UK are also financed through separate private finance initiative deals.
On Thursday, Labour set out plans for what it called “the biggest overhaul . . . in a generation” of the railways, centred on nationalising all passenger train companies, should it win the next general election.
This would see operators including Avanti West Coast, Great Western Railway and Govia Thameslink join the infrastructure manager Network Rail back in public hands.
Trade unions have called for roscos to be nationalised too, labelling them a drag on the railway, pointing out they have paid £1.5bn in dividends to their owners since 2016.
But Labour confirmed its plans to continue to tap the private sector to finance trains. Louise Haigh, Labour’s shadow transport secretary, said this demonstrated the party’s pragmatic approach to reform. “We are not ideological about this, we are encouraging working with the private sector.”
Industry executives and analysts said nationalising the roscos would have been a far more expensive and complex challenge than the train operators. Labour has said taking the passenger rail services back in to public hands would be cost neutral as it would only do so as the contracts expire or when a break clause triggers.
Mark Swindell, chief executive of rosco Rock Rail, said the industry had brought billions of pounds of pension fund and other institutional investors’ money into the railway industry.
He defended the level of profits the leasing companies made as reasonable. “We are not talking VC private equity returns, we are talking about steady returns which are commensurate to the risks,” he said.
Roscos also provide international expertise in train procurement and shift the risk of buying assets with 35-year lifespans from the public to private sector, he added.
“Labour has done the sensible thing,” said Roger Ford, industry and technology editor of Modern Railways, a specialist rail publication, who advised on the privatisation of the roscos in the mid-1990s as part of the wider sell-off of the railways by the Conservative government at the time.
“The roscos have bought and funded new trains and invested billions of pounds . . . If you nationalised them you would be nationalising trains already bought by the private sector,” he said.
Apart from the upfront costs of buying thousands of rail carriages, the government would also be left to finance future train orders.
The Rail Industry Association, which represents companies in the supply chain, including roscos, said companies had spent £20bn on new trains since 1995, saving the government from the upfront capital costs.
Ford estimated that the pipeline for new trains in the UK would require £1.5bn in funding per year, which will continue to be financed by the private sector. “They do the capex for you . . . if you didn’t have the roscos then the Treasury would have to come up with the money to buy new trains,” he said.
Mary Grant, chief executive of Porterbrook, said Britain’s railway required “substantial investment” over the next 30 years. “We welcome the Labour party’s commitment to leverage private capital to help deliver its long-term strategy for rolling stock,” she said.
Malcolm Brown, CEO of Angel Trains, said: “Our role and long-term commitment to driving improvements across the UK is integral to delivering a modern transport system fit for the future.”
But senior trade union figures said Labour’s decision to leave owning trains to the private sector meant there was still unfinished business in their battle to reverse 30 years of privatisation.
“This announcement . . . should be a first step to completely integrating all the railway into public ownership,” said Mick Lynch, general secretary of the RMT.
“It is time for a railway fit for the 21st century that serves the public, not the privateers and shareholders.”
William Turner is a seasoned U.K. correspondent with a deep understanding of domestic affairs. With a passion for British politics and culture, he provides insightful analysis and comprehensive coverage of events within the United Kingdom.
