ROSCOs and nationalisation: any ideas?

[Iskra]

I would rather it wasn’t about a political agenda but was the best for the railway.

Well even what's best for the railway depends on who you to talk to, or who you are thinking about- e.g passengers, taxpayers, staff or the treasury? Like it or not, the railways don't operate in a vacuum.

 

[coppercapped]

I would be very surprised if that’s what Labour intend for it, rather than supporting British things that struggle for finance for political or delayed return reasons.

If a business proposal has merit, that is if it has a good chance to become profitable, then there will be no difficulty in raising capital. It does not even have to make money quickly, responsible financial organisations are quite used to having to wait years if necessary for a return - all they require is a solid business plan. A venture capital organisation will also assist the entrepreneur by offering advice or assisting in much of the boring day-to-day aspects of running a business.

Do you have an example of 'British things' that struggle for finance? I would only point out here that any proposal which has, as a key part of its business plan, a requirement for an ongoing subsidy is doomed to failure.

 

[Meerkat]

If a business proposal has merit, that is if it has a good chance to become profitable, then there will be no difficulty in raising capital. It does not even have to make money quickly, responsible financial organisations are quite used to having to wait years if necessary for a return - all they require is a solid business plan. A venture capital organisation will also assist the entrepreneur by offering advice or assisting in much of the boring day-to-day aspects of running a business.

Do you have an example of 'British things' that struggle for finance? I would only point out here that any proposal which has, as a key part of its business plan, a requirement for an ongoing subsidy is doomed to failure.

I was assuming the proposal would be like the European Investment Bank, which I am assuming is more amenable than private investors for investing in public sector infrastructure???

 

[coppercapped]

I was assuming the proposal would be like the European Investment Bank, which I am assuming is more amenable than private investors for investing in public sector infrastructure???

You may well be right, but there are some significant differences.

The EIB is the European Union's bank and is owned by the Member States of the European Union each of which has supplied capital in rough proportion to the member states' GDPs. Its role is to fund projects that achieve the aims of the EU; some of these projects will of course not be profitable in a narrow financial sense but the cost is spread across all the member states.

In the UK the situation is somewhat different. The UK's National Wealth Fund will only have one owner, the UK government, so there is no chance of spreading 'not financially' profitable projects over many owners. As far as the UK government is concerned there is little difference between financing a project directly or doing it through an intermediary.

But who knows what plans the government has...!

 

[eldomtom2]

I would only point out here that any proposal which has, as a key part of its business plan, a requirement for an ongoing subsidy is doomed to failure.

If the subsidy can be reliably depended on to exist, I can't see how it's a failure. There are plenty of businesses that are focused around selling things to the government...

 

[coppercapped]

If the subsidy can be reliably depended on to exist, I can't see how it's a failure. There are plenty of businesses that are focused around selling things to the government...

Selling to the government is not the same thing as receiving subsidies from the government. I would have thought that was obvious.

One can't rely on government subsidies to continue to exist:

• At the end of 2023 because of budget issues the German government removed the subsidy paid to promote the sales of electric cars. In May 2024 sales were 30% lower than in May 2023 and overall sales are down by 16% on an annual basis. This Reuters news item gives more detail https://www.reuters.com/business/au...erman-demand-slumps-industry-says-2024-06-20/
• the UK government stopped subsidising HS2 to the extent expected
• the UK government stopped subsidising Network Rail to electrify part of the Great Western route.

 

[eldomtom2]

Selling to the government is not the same thing as receiving subsidies from the government. I would have thought that was obvious.

What would you define as the difference? I wouldn't consider the cancellation of HS2 Phase 2 to be the government ending subsidies, for instance.

 

[asdthrowaway]

Because it is seen as money leaving the railway industry, eg fares and subsidy being paid out as private profit. There appear to be certain industries where the public are not prepared to see private profit made.


It was the only way they could afford to buy the Piccadilly line stock in the absence of other funding.


Their customers, through higher lease charges on future rolling stock, so some suggest.


I'm not convinced there is a ready source of finance for that given the public finances, no matter how much distrust of ROSCOs there is.

so we have come to the general consensus that buying out rolling stock is the move here? (in a perfect world where we had the money ofc, which is not now)
imo we should **** or get off the pot, either entirely privatise rail entirely or take control, i guess were going for the latter

 

[Meerkat]

so we have come to the general consensus that buying out rolling stock is the move here? (in a perfect world where we had the money ofc, which is not now)
imo we should **** or get off the pot, either entirely privatise rail entirely or take control, i guess were going for the latter

Why would you buy out the rolling stock?
The talk about private investment for HS2 and Euston suggests that Labour are not ideologically against using private money to avoid capital spending and I can't see any practical gain, and at least two big problems from paying for trains up front.

In terms of ongoing/new leases how easy will it be to keep them off the national debt stats if the user is a state owned company and the trains have almost no use apart from with another part of the state owned company? There is a clear guarantee from the state - the lessors need to rely on that if there are no users for the trains other than the company (GBR) that is their risk of default. Might be a reason to keep open access operators on the system???

 

[Snex]

Why would you buy out the rolling stock?
The talk about private investment for HS2 and Euston suggests that Labour are not ideologically against using private money to avoid capital spending and I can't see any practical gain, and at least two big problems from paying for trains up front.

In terms of ongoing/new leases how easy will it be to keep them off the national debt stats if the user is a state owned company and the trains have almost no use apart from with another part of the state owned company? There is a clear guarantee from the state - the lessors need to rely on that if there are no users for the trains other than the company (GBR) that is their risk of default. Might be a reason to keep open access operators on the system???

I'm not sure using the reason to bend statistics so the debt is lower is a good argument mind.

Personally I'd rather go for the option which is a lower cost in the long term.

Is it any different the state spending hypothetically, per each train, £300k a year paying off the debt repayments for let's say 20 year vs paying £350k a year paying the debt repayments for the company who funded them plus a little bit more, indefinitely, because that's pretty much reality.

 

[Halifaxlad]

Could the goverment not create their own ROSCO ?

They can create their own operators so I dont see why not.

 

[Stephen42]

Could the goverment not create their own ROSCO ?

They can create their own operators so I dont see why not.

If they wanted to yes, it might require legislation if parliament haven't already given authority for the DfT to spend money owning trains. In accounting terms it doesn't make much difference if it's directly owned or via a publicly owned ROSCO. Any debts that organisation has would count against the national debt, be included in capital expenditure and financing requirements in budgets and so on.

Trains at least are an item that can be sensibly leased, they can be returned to owner if no longer wanted (as seen during recent years to reduce costs) or switch to different trains if not happy with the deal. Compared to more permanent infrastructure there is an argument to lease the trains and use financing elsewhere. It might not be the most efficient, however it avoids having to compete with every other demand on the public purse to get new trains.

With everything else that's going on, the rail industry isn't going to get any points for suggesting solutions that require billions in upfront expenditure with no user benefits and a payback period far after the current administration would expect to leave office.

 

[Bald Rick]

Could the goverment not create their own ROSCO ?

Why would they? Straight ownershio would be somewhat easier!

 

[Meerkat]

I'm not sure using the reason to bend statistics so the debt is lower is a good argument mind.

Personally I'd rather go for the option which is a lower cost in the long term.

Is it any different the state spending hypothetically, per each train, £300k a year paying off the debt repayments for let's say 20 year vs paying £350k a year paying the debt repayments for the company who funded them plus a little bit more, indefinitely, because that's pretty much reality.

The key advantages of ROSCOs is their access to capital. If a train service can pay the lease the ROSCOs will find someone to fund it, pretty quickly.
If you deal with the Treasury there are cash limits, and the railway is competing for that cash with hospitals/schools/tanks.
They also take some of the risk for crap trains. If the DfT force GBR to buy an Alstom train that is crap then GBR is stuck with them, no dumping them back on the Lessor after a few years. Same if demand plummets or the service needs a different style of train. The least politically sensitive area will just become a dumping ground for them.

 

[Snex]

The key advantages of ROSCOs is their access to capital. If a train service can pay the lease the ROSCOs will find someone to fund it, pretty quickly.
If you deal with the Treasury there are cash limits, and the railway is competing for that cash with hospitals/schools/tanks.
They also take some of the risk for crap trains. If the DfT force GBR to buy an Alstom train that is crap then GBR is stuck with them, no dumping them back on the Lessor after a few years. Same if demand plummets or the service needs a different style of train. The least politically sensitive area will just become a dumping ground for them.

I guess that depends on how the railways are ran though. There's arguably no reason why the ROSCO still couldn't exist as an arms length company owned 100% by the government getting finance independently, ran exactly the same as it is now. The only difference is the profits which Angel trains, or whoever, makes goes back to the state rather than to private shareholders.

I do agree though that's you'd probably not want the trains owned directly by GBR for the reasons you said though.

The DfT shouldn't have any say on procurement either imo but that's for another thread.

 

[Thirteen]

Leasing is useful for releasing capital as well. TfL sold and leaseback the Class 345s for example

 

[renegademaster]

Wont the price ROSCOs are able to ask collapse with their only be a signle buyer? The only items theyll be able to sell to someone else is diesel stock to third world countries that dont care that what they will get will be comically too small for their gauge. Electric stuff and more modern DMUs will only have GBR and the scrapman.


Edit: Some of the 125 stock can go to the OA operators, but i cant see much else going anywhere

 

[stevieinselby]

Leasing is useful for releasing capital as well. TfL sold and leaseback the Class 345s for example

You're still robbing tomorrow to pay for today. The lifetime costs of ownership are almost always lower than the lifetime costs of leasing, even when you take into account the interest on borrowing. But because of the way that we account for public finances, future debt is not counted whereas current borrowing is, so we're constantly in a world where we spend more in the long run because it looks better on the books right now.

It's like the Vimes "Boots" Theory of Socio-economic Unfairness but where an entire country chooses to do things the poor man's way.

 

[LNW-GW Joint]

= Merseytravel? Thought it was Liverpool City Region Combined Authority, but either way, they are apparently the first publicly-owned trains in more than a generation.

But the 777 fleet is maintained by the manufacturer (Stadler) in a long-term deal which includes he Merseyrail depots.
There is still a significant private sector element in the 777 fleet strategy.
Things might change when the Merseyrail concession runs out in 2028.

Roscos also employ a significant number of technical railway staff (for specifying, commissioning and long-term support for the various fleets).
You would certainly notice if this resource was simply deleted from the railway scene for "taking money out of the railway".

 

[Meerkat]

I guess that depends on how the railways are ran though. There's arguably no reason why the ROSCO still couldn't exist as an arms length company owned 100% by the government getting finance independently, ran exactly the same as it is now. The only difference is the profits which Angel trains, or whoever, makes goes back to the state rather than to private shareholders.

That would almost certainly get classified as part of the national debt and therefore be pointless.
You are assuming, as always with the privatisation v nationalisation argument, that the profits will still exist. Without the profit motive and competition the efficiency motivation drops - just let those costs rise…why try harder?

Wont the price ROSCOs are able to ask collapse with their only be a signle buyer?

This is a danger with a single GBR. ROSCOs become untenable, the capital needed can’t be kept off government books, the Treasury strangles investment (even more).

You're still robbing tomorrow to pay for today. The lifetime costs of ownership are almost always lower than the lifetime costs of leasing, even when you take into account the interest on borrowing.

Not getting the trains is also depriving the future, and the today.

 

[JonathanH]

You are assuming, as always with the privatisation v nationalisation argument, that the profits will still exist. Without the profit motive and competition the efficiency motivation drops - just let those costs rise…why try harder?

So where are the savings that the private sector can make. It could pay its staff a little less, employ them on worse terms, expect a little more productivity, but many of those things happen in the public sector too now. Maybe it can drive a harder bargain with the suppliers.

What is the issue with the state that it can't do things cheaper and deliver something more efficient?

 

[43096]

What is the issue with the state that it can't do things cheaper and deliver something more efficient?

The state is inherently incompetent. British Rail was very much a case of "the exception that proves the rule".

 

[Meerkat]

So where are the savings that the private sector can make. It could pay its staff a little less, employ them on worse terms, expect a little more productivity, but many of those things happen in the public sector too now. Maybe it can drive a harder bargain with the suppliers.

What is the issue with the state that it can't do things cheaper and deliver something more efficient?

The state could but the motivation isn’t enough. The only major motivation is ugly - when the budget just gets slashed arbitrarily.
You notice the problem in the private sector if you stay long enough in one place.
When the pressure isn’t on managers empire build, don’t punish poor performance (as that’s stressful), HR invent courses and projects, travel booms.
Then the shareholders get huffy, suddenly a phone conference is good enough, HR go quiet, vacancies aren’t filled because they aren’t really necessary, and performance management gets tough. People ask ‘do we really need to do this’ and ‘there must be a better way’

 

[Clarence Yard]

Wont the price ROSCOs are able to ask collapse with their only be a signle buyer? The only items theyll be able to sell to someone else is diesel stock to third world countries that dont care that what they will get will be comically too small for their gauge. Electric stuff and more modern DMUs will only have GBR and the scrapman.


Edit: Some of the 125 stock can go to the OA operators, but i cant see much else going anywhere

No, it doesn’t quite work like that.

If the trains don’t get leased, the ROSCO can make money because the overhaul money doesn’t get spent. You can also scrap the unit and return all the maintenance provision back to the P&L as profit.

GBR has absolutely no purchasing power when it comes to cutting a better deal, except to cut a longer deal which should lower lease prices. Lowering average unit miles per year will also help.

 

[Snex]

That would almost certainly get classified as part of the national debt and therefore be pointless.
You are assuming, as always with the privatisation v nationalisation argument, that the profits will still exist. Without the profit motive and competition the efficiency motivation drops - just let those costs rise…why try harder?

Does the number of the national debt really matter though?

I'm assuming more the part we've been leasing trains like the Class 158 which was no doubt paid off over 10 year ago. That's the massive flaw. We've also been binning off trains recently which shouldn't be getting binned off just because it's cheaper to lease a new train. The alternative is though we could be using that older train for absolutely nothing which is totally fit for purpose in most cases.

The fact the ROSCO's are happy to scrap the trains and aren't making a massive loss would suggest they've already been paid off so they don't care either. This is the sort of stuff which costs the railways in the long term for short term gains (not having debt).

 

[JonathanH]

Does the number of the national debt really matter though?

Yes, the more the debt grows, the more of the country's tax has to go towards paying interest on it.

 

[JamesT]

Yes, the more the debt grows, the more of the country's tax has to go towards paying interest on it.

Also, the higher the debt then generally the higher it has to be priced to get people to buy it (ie the interest rate goes up), which puts the cost of servicing it up even more.

 

[renegademaster]

Yes, the more the debt grows, the more of the country's tax has to go towards paying interest on it.

But we are still paying that, but with a middleman taking an extra cut , because new labour maths keeps it off the books that way. Like how renting is just paying off someone else's mortgage , you dont save any money even if you arent paying interest directly

 

[Snex]

Yes, the more the debt grows, the more of the country's tax has to go towards paying interest on it.

You're right but the alternative here is using the countries tax to pay for trains indefinitely so we're not further forward. Obviously using debt for non capital stuff is completely stupid though.

 

[JonathanH]

You're right but the alternative here is using the countries tax to pay for trains indefinitely so we're not further forward. Obviously using debt for non capital stuff is completely stupid though.

Yes, and of course the ultimate problem is that we are continually borrowing from the future with no clear vision, other than some chat about "growth", as to how we will ever get out of the (black) hole we are in.