Leasing row prevents Pendino extension

The rail companies may be forced into offering a new excuse for why people cannot get on their intended train: the wrong sort of rail industry structure’. This is because there is a fantastic three way kafuffle going on between the Department for Transport, the rolling stock company Angel and Virgin trains which is a result of a combination of the law of unintended consequences with the complex nature of rail privatisation.

With the hugely expensive refurbishment of the West Coast Main Line and the introduction of the Pendolino trains journey times to Birmingham, Manchester and Liverpool have been cut dramatically prompting the need for extra carriages for the trains, the most cost effective way of adding capacity.

Adding two coaches to the 53 trains would cost around £150m, but there is some urgency as Alstom will shut its production line soon, and requiring it to restart would add to the bill. Virgin, keen to maximise revenue are happy to lease the extra coaches and the Department has agreed that there is a business case on purely commercial grounds which means it is keen to go ahead. But, the train are owned by Angel which is worried that its own business case will be undermined by the possible enquiry that may be launched by the Competition Commission following the Department’s complaint that the rolling stock market is not working efficiently and that the industry is overcharging the operators – and thus the taxpayers – annually by around £100m. What, Angel wonders, will happen if the Commission decides to force a reduction of charges? Angel argues that the revenue from older trains, which indeed is rather higher than the historic cost would suggest, allows the company to lease out newer trains, which are less profitable, more cheaply.

Therefore, Angel has decided not to play ball, refusing to countenance adding the extra coaches until the outcome of the enquiry – which has not yet even reached the Commission because the Rail Regulator has still to make a final decision – is known and that may be a couple of years down the line. Angel hold all the cards since it would be impractical for different parts of a train to be owned by separate companies.

So, for wont of a measly £150m, held up by the minefield that is the privatised rail industry, the best use is not been made of the sunk asset of the near £10bn spend on the upgrading of the West Coast Main Line. This would not happen if the decisions on investment were coordinated by one body, such as British Railways or, indeed, foreign integrated railways such as those in Japan (which is privatised but not fragmented) and Switzerland.

This scenario may be repeated in various ways over the next few years. Demand for rail travel shows no sign of abating and yet the government and the regulators are working to a model which adds very few new trains to the network. Moreover, most of the big franchises have been let recently in deals that involve squeezing the most out of operators which means that they will be unwilling to provide any extra trains without increases in subsidy and that, frankly, is not on offer. The private rolling stock companies will need big incentives to provide extra trains, as will the private train operators.

None of this is unexpected. The rail privatisation model of franchising was designed by the Tories to keep expenditure to a minimum on a railway that was expected to be contracting. The Department, which effectively maintained the current structure after the 2004 rail review, is now discovering just how unsuited that model is to an expanding railway which needs to accommodate growth. Meanwhile, as the bus conductors used to say when I took the 49 bus to school, for many rail passengers, for whom the arcane politics of the industry is a mystery, it will be ‘standing room only’.

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