According to official data, private companies that rent out trains for the British railway system have experienced a threefold increase in profits in the span of one year. These companies have also distributed over £400m in dividends.
In the 2022-23 fiscal year, the Office of Rail and Road reported that rolling stock companies distributed a sum of £409.7m to shareholders and experienced a profit margin increase of 41.6%. Meanwhile, other parts of the railway were instructed to make severe reductions and employee salaries were halted. Despite this, taxpayer subsidies remain twice as high as they were before the pandemic.
Labor organizations are calling for a tax on the significant profits being made, arguing that the leasing companies face no consequences for their involvement in the transportation industry.
According to the ORR, a financial review of the rail industry conducted by the rail regulator revealed that while there was a small decrease in the total amount of money spent on leasing costs by train operators last year to £3.1bn, it is still significantly higher by almost 30% compared to five years ago. This increase occurred despite overall rail industry staff costs remaining the same during this time period.
According to the Office of Rail and Road, the companies responsible for maintaining rolling stock, known as Roscos, distributed dividends of £287.4 million in 2022-23, a significant increase from the previous year’s £122.3 million. Additionally, their net profit margins rose from 14.3% to 41.6%.
After the failure of franchising, train operating companies are currently under management contracts that have a margin of approximately 2%. These contracts are designed for the government to cover the difference between revenue and expenses, resulting in taxpayers bearing the burden of the £3.1 billion spent last year on leasing trains, which accounts for almost a quarter of the total costs in the industry.
“Amid the pandemic in 2020, lease contracts for rolling stock were safeguarded by ‘Hell and high water’ clauses, despite a sharp decline in passenger revenue. Despite requesting significant cost reductions from Network Rail and train operators, the Department for Transport did not pursue renegotiation or rescheduling of lease payments to rolling stock companies, according to reliable sources.”
The three rolling stock companies are Eversholt, Porterbrook and Angel Train. They were created at privatisation with the controversial sell-off of state-owned British Rail trains, and still lease the majority of UK trains. They have paid cumulative dividends of around £2bn in the last decade, and the highest-paid directors earn almost twice as much as the chief executive of Network Rail, Andrew Haines.
In the most recent financial report, submitted in the previous year, Eversholt, a company owned by Hong Kong’s CK Hutchison under Li Ka-shing, distributed dividends totaling £40.7m. Additionally, Eversholt’s CEO, Mary Kenny, received a salary of £1.075m.
In 2022, Porterbrook, which is owned by a group of shareholders led by insurer Allianz from Luxembourg and Canadian pension fund AIM, distributed £80 million in dividends. Meanwhile, the company’s chief executive, Mary Grant, received a salary of £1.2 million.
The majority shareholder of Angel Trains, the Canadian pension fund PSP, distributed dividends totaling £124.6m. Additionally, the company’s CEO, Malcolm Brown, received a salary of £900k.
Mick Lynch, general secretary of the RMT union, said the firms neither built nor commissioned trains but were taking huge profits: “If a traditional company invests, researches, spends its capital, then they’ve got the right to make a return – but the rolling stock leasing companies don’t do that. They are a middle person between essentially now the taxpayer and the manufacturers.
“These sophisticated financial tools and lease arrangements are simply another iteration of PFI, which has proven to be a failure for both our hospitals and local governments. While it may be within the boundaries of the law, there is a fraudulent scheme taking place where the setup of rolling stock leasing has generated substantial dividends and profits with no risk involved.”
The majority of train tickets in England will increase by 4.9% in the upcoming month.
The Labour party has announced that if they win the election, they will nationalize train operating companies as their contracts end. However, they did not provide a statement regarding the Roscos.
Lynch acknowledged that the process of returning rolling stock to public ownership was complex. However, he suggested that Labour could consider implementing a windfall tax on these Roscos as a means of recouping some of the funds invested.
In certain sectors of the railway field, there is widespread backing for Roscos. According to a high-level insider, “They have made a considerable amount of money, but we have also acquired thousands of new trains… If the government had allocated these funds to areas like education, healthcare, or law enforcement, they would have been prioritized first.”
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According to Roger Ford, an editor at Modern Railways, competition has gotten better since the three-company monopoly that followed privatization. However, certain instances of direct government purchasing have not been cost-effective. Ford specifically points out the case of the Intercity Express trains, which were bought with a 27-year maintenance contract and ended up being more costly than leasing. This has made it challenging to make any necessary changes.
A representative from the Department for Transport stated that rolling stock companies assume financial risk in order to improve the quality of trains and allocate more funds towards education, healthcare, and infrastructure. The government has been working for over ten years to introduce competition in the market and reduce expenses for operators.
A representative from Porterbrook stated that they have put in over £3 billion towards passenger and freight vehicles in the past three decades, providing support for over 100 companies in the UK and creating 7,000 jobs.
“Our shareholders’ funding enables us to make significant investments in revolutionary railway advancements. In accordance with standard business practices, dividends are distributed when deemed appropriate.”
“This funding has allowed Porterbrook to invest over £350m in significant fleet upgrade programmes, £12m in the development of the UK’s first hydrogen-powered train, HydroFLEX, to support net-zero targets, and over £10m upgrading the Long Marston Rail Innovation Centre in Warwickshire to support innovation and maintenance for our customers and the railway”.
A representative from Angel Trains stated that the company has dedicated over £1.5 billion in the past ten years, with the majority of funds going towards services provided by small and medium-sized businesses.
“Over the past year, our company has invested more than £250m in rolling stock. This significant financial responsibility lies with our shareholders and business, not with the UK taxpayer, and is essential in bringing about improvements in our rail network.”
The dividend, which was the initial payout in three years, equated to a yearly profit of 4.1% for shareholders. Additionally, all Angel Trains companies, including those based in Jersey, were subject to UK tax laws.
Eversholt chose not to provide a statement.
Source: theguardian.com
