My Lords, Amendment 44 requires the Secretary of State, within 12 months of enacting the Bill, to publish an annual report on the relationship
between the provisions of the Bill and the leasing of rolling stock to public sector companies. My preference would have been to end the private ownership of rolling stock, but the Bill officer suggested that such an amendment was beyond the scope of the Bill—hence this silly weak amendment that I am putting forward.
The background is that, during Second Reading, on 7 October, the noble Baroness, Lady Blake of Leeds, laid down the principles of the Bill. She said:
“This Bill will ensure that trains are run for the benefit of the British public, not for the profits of shareholders around the world”.
She added that, by ending the current franchise system for passenger railways,
“the taxpayer will save between £110 million and £150 million a year in fees
”.—[Official Report, 7/10/24; cols. 1831, 1833.]
The Government have already said that they will not bring rolling stock back into public ownership. However, the new system, operated by a public company, will still need rolling stock, and the Government have not provided a great deal of clarity on that so far. By leaving the rolling stock in private hands, they will be negating their own principle, which was to deny profits to shareholders around the world.
The Bill will not facilitate public ownership of passenger railway services. Instead, it will facilitate what I call “rent a carriage”. That will guarantee massive profits for rolling stock companies—roscos—which do not build or commission trains but make huge profits. Last year, roscos charged £3.1 billion for leasing out rolling stock and had a profit margin of 41.6%. That is a profit of £1.29 billion in one year, extracted from customers and the public purse. The actual amount which the shareholders have extracted from roscos is likely to be much, much bigger—more of that in a moment.
I looked at the accounts of one of the roscos and it is full of financial engineering. The £1.29 billion profit which it declared for a year is far greater than the savings for the passenger services that the Minister said would be £110 million to £150 million a year. There is no justification for the profiteering of roscos, especially as the payments are guaranteed and in future will be guaranteed by the state—at worst, it can simply print the money—so the risk is very low. The return should be no higher than the yield on any government bond, which is technically called a risk-free rate of return.
The actual returns extracted by rosco shareholders are much bigger than the dividends. Let me illustrate that with quotes from the accounts of Porterbrook, which is one of these companies. It is owned by foreign shareholders: Canadian pension fund manager Alberta Investment Management; Luxembourg-based Allianz Capital Partners; EDF Invest, which is owned by the French Government; and Australian infrastructure investor Hastings Funds Management. Porterbrook’s 2023 accounts show a payment in dividends of £150 million. In 2022, it was £285 million. That is £435 million in dividends in just two years, which is far greater than the expected total saving of £110 million to £150 million for the publicly operated passenger service.
The company also shifts profits through intra-group transactions. In 2023, it paid £154 million interest on its debt, which included £153.5 million to other entities
in the same group—not to an outsider, but within the same group. In 2022, it made interest payments of £162.4 million, which included £161.2 million to other group entities. In the absence of additional information, it is hard to know whether such payments are genuine. They are probably not.
Of course, profits are also shifted to avoid taxes. Interest payments give the company a tax-deductible expense, even though the transactions are not arm’s length and may lack economic substance. This company paid no corporation tax in the last two years, dividends are paid to foreign investors, and they did not pay any UK tax on those. This really is organised looting, permitted by the last Government, and I urge the Minister to ask HMRC to investigate these companies. Over the last two years, Porterbrook extracted at least £750 million in returns for its shareholders, or an average of £375 million a year. This is far greater than the £110 million to £150 million which the Government hope to save by ending passenger rail franchises.
I have referred to only one company, which is by no means the largest one, but I am sure the Minister gets the substance of my arguments. Billions of pounds can be saved by ending the role of current roscos in the railway industry. Leasing out rolling stock is effectively a licence to print money. I understand from rail company executives that the useful economic life of a carriage is around 30 years or more. The cost of a carriage is normally recovered through rental or leasing arrangements over a period of five to seven years. This being so, the rental charges of 23 to 25 years are pure profit, nothing else. There is absolutely no economic justification for this. The Government can help by stopping the use of current roscos. They can buy direct from manufacturers or set up a Great British Railways leasing company. All of these options are preferable to the current practice.
I hope that, as a first step towards ending profiteering, the Minister will agree to publish the annual report that this amendment calls for. It should provide data about the returns extracted by shareholders in dividends, intragroup transactions, related-party transactions and various profit-shifting techniques. Of course, my preference is to end this roscos circus altogether.