Profits of UK’s private train-leasing firms treble in a year
Private firms that lease out trains for Britain’s railway have seen their profits treble in a year, with more than £400m paid in dividends, official figures show.
The rolling stock companies paid out a total of £409.7m to shareholders and profit margins rose to 41.6% in 2022-23, according to the Office of Rail and Road, as the rest of the railway was told to make swingeing cuts and salaries were frozen. Taxpayer subsidies are still running at twice pre-pandemic levels.
Unions have urged a windfall tax on the huge dividends, describing the financing of trains as a “racket” without risk to the leasing firms.
Financial analysis by the ORR, the rail regulator, shows that although the total in leasing costs paid by train operators fell slightly last year to £3.1bn, it is still almost 30% higher than five years ago, in a period when overall rail industry staff costs remained static.
The ORR said the rolling stock companies, or Roscos, paid dividends of £409.7m in 2022-23, up from £122.3m a year before. Their net profit margins went up from 14.3% to 41.6%.
Since the collapse of franchising, train operating companies are now on management contracts of margins of about 2%. Train operators’ contracts are now structured for the government to make up the shortfall between revenue and costs, meaning taxpayers are now effectively paying the £3.1bn spent last year on leasing trains, almost a quarter of total industry costs.
“Hell and high water” clauses protect lease contracts on rolling stock despite passenger revenue virtually disappearing in 2020 during the pandemic. According to well-placed sources, the Department for Transport did not attempt to renegotiate or reschedule lease payments to rolling stock companies, despite demanding Network Rail and train operators find huge savings.
The three rolling stock companies are Eversholt, Porterbrook and Angel Trains. 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.
According to its latest accounts, filed last year, Eversholt, a subsidiary of Li Ka-shing’s Hong Kong firm CK Hutchison, paid dividends of £40.7m in 2022, while its chief executive, Mary Kenny, was paid £1.075m.
Porterbrook, owned by a group of shareholders led by Luxembourg-based insurer Allianz and Canadian pension fund AIM, paid dividends of £80m in 2022, while chief executive Mary Grant was paid £1.2m.
Angel Trains, majority-owned by the Canadian pension fund PSP, paid dividends of £124.6m, and chief executive Malcolm Brown was paid £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 fancy financial instruments and leasebacks are just another version of PFI, which has been a disaster for our hospitals and local councils. It’s legal, but there is a racket going on, where the structure of rolling stock leasing has just created massive dividends and massive profits entirely without risk.”
Most rail fares in England are due to rise by 4.9% next month.
Labour has said that if elected, it will bring train operating companies into public ownership as contracts expire, but it declined to comment on the Roscos.
Bringing rolling stock back into public ownership was complicated, Lynch admitted: “But at least Labour could look at a windfall tax on these Roscos to get some of our money back.”
Within parts of the rail industry, there is significant support for Roscos. One senior source said: “They’ve made big bucks, but we’ve got thousands of new trains … If [buying trains] was on the government books, schools, the NHS or police would have got the spending first.”
Roger Ford, industry editor of Modern Railways, said competition had improved since the post-privatisation triopoly, while some direct government procurement had proved worse value for money: “The Intercity Express trains which the government procured with a 27-year maintenance contract was much more expensive than leasing – and makes it very difficult to change things.”
A Department for Transport spokesperson said: “By taking on the financial risk, rolling stock companies drive up the quality of our trains while freeing up billions of pounds to be spent on schools, hospitals and roads. Although ultimately for operators, we have spent over a decade working to introduce competition into the market and drive down costs.”
A Porterbrook spokesperson said it had invested over £3bn in passenger and freight vehicles in the last 30 years, supporting more than 100 UK companies and 7,000 jobs.
“We’re able to invest in groundbreaking innovation for the railway because of the funding that our shareholders provide, and in the normal course of business, when appropriate, dividends are paid.
“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”.
An Angel Trains spokesperson said the firm had invested more than £1.5bn over a decade and spent most of the money on services from small and medium-sized firms.
“In the last year alone, in excess of £250m was spent on rolling stock. This substantial financial risk is borne by our shareholders and business, not the UK taxpayer, and is crucial to driving change in our rail network.”
They said the dividend was the first paid in three years and represented an annual return of 4.1% for shareholders, while every Angel Trains company, including the Jersey-based parent companies, was registered for tax in the UK.
Eversholt declined to comment.