Train owners refuse to cut their prices
The Guardian: May 26, 2006
Andrew Clark, transport correspondent
A handful of financial institutions that own almost all of Britain's trains are likely to be investigated for anti-competitive behaviour after failing to quash government concerns that their profits are excessive.
After months of negotiations, the Department for Transport has set a deadline of today for three rolling stock companies - Angel Trains, Porterbrook Leasing and HSBC Rail - to cut their prices. Industry sources say only Angel is still engaged in talks with the DfT, while the other two are refusing to negotiate.
Unless a last-minute deal is struck, the transport secretary, Douglas Alexander, is likely to make a formal complaint about them to the Office of Rail Regulation, which has the power to undertake a market review. If it decides the companies are abusing their position, it can refer them to the Competition Commission - which can impose fines or order divestments.
The three companies are owned by banks. Angel is controlled by Royal Bank of Scotland, while Porterbrook is owned by Abbey - which is part of Spain's Banco Santander. Between them, they lease 90% of Britain's rolling stock to train operators.
They were separated from British Rail when the railways were privatised and were sold off as independent entities. The architects of privatisation were keen to keep ownership of rolling stock distinct from operation in order to smooth the transition when rail franchises change hands.
The rolling stock companies make combined profits of between £150m and £200m annually. They say this is modest as they have assets of £7bn. However, critics say they have a stranglehold on the market and they bear little risk, passing responsibility for day-to-day maintenance to train operators. Many train operators are unhappy and the inter-city firm GNER has been particularly critical - its parent company, Sea Containers, has attacked rolling stock firms for making "grotesque" sums of money.
In its white paper on rail two years ago, the government said it wanted to develop a new strategy for rolling stock, indicating that it did not believe the industry was sufficiently competitive: "Assumptions made at the time of privatisation have not generally come to pass."
The government has asked the rolling stock companies to cut their revenue by about £30m each. They are refusing to do so, and in Angel's case senior executives from Royal Bank of Scotland have lodged vigorous complaints with Whitehall.
The original cut-price privatisation of the three companies prompted a scandal investigated by the National Audit Office, which said taxpayers had been shortchanged by £1.1bn.
The rail regulator has investigated them once before, concluding in 1998 that while there was no evidence of anti-competitive behaviour, the tight balance between supply and demand "did appear to create the potential for abuse to occur".
Rolling Stockholders - ROSCOs
Fleet 5,500 vehicles;
Includes Inter-city 125s used by Midland Mainline and First Great Western;
Sold by the government for £528m
* Angel Trains:
Owner Royal Bank of Scotland;
Fleet 5,000 vehicles;
Includes Virgin's tilting Pendolinos on the West Coast Mainline;
Sold by the government for £696m
* HSBC Rail:
Fleet 4,000 vehicles;
Includes GNER's locomotives;
Sold by the government for £518m