UK: Watchdog inquiry threat over rolling stock

The companies supplying the trains and carriages that run on Britain's railways are facing the threat of a competition inquiry today amid allegations they are ripping off passengers by charging the rail-operating firms too much.

The Department for Transport has referred the matter to the Office of Rail Regulation after talks aimed at lowering the cost of rolling stock failed last month. In a statement, the ministry said privatisation had failed in its aim of introducing a competitive train-leasing market.

Train operators lease almost all of their rolling stock from just three companies, each owned by one of the big banks: Angel Trains, a division of the Royal Bank of Scotland; HSBC Rail, owned by HSBC; and Porterbrook, a part of the Abbey Group.

They were separated from British Rail when the railways were privatised in 1996 and sold off as independent entities. They make combined profits of £165m a year.

The Guardian disclosed last month that the government had set a deadline for the rolling stock companies to cut their prices or face an inquiry.

In a statement today, the Department for Transport said: "On the information and analysis available, the department is not satisfied the prices charged for the rolling stock are fair and competitive. It is the department's contention that there is a lack of effective competition. This decision has been taken to secure good value for both tax- and farepayers."

The rail regulator, a nine-member board chaired by Chris Bolt, will now consider referring the issue to the Competition Commission.

Many train operators have complained of excessive fees, among them Sea Containers, which owns GNER, which recently described the prices charged by rolling stock firms as "grotesque".

There are about 12,500 trains and carriages on lease, with roughly 60% predating the privatisation of British Rail. The banks charge the rail-operating companies about £1bn a year. Ministers believe the companies are overcharging by up to £100m a year.

The Department for Transport said the rail-leasing firms had invested more than £4bn in new trains and carriages over the past 10 years but said prices remained too high and that there was a lack of transparency in the charges.

The government has made its dissatisfaction with the rail-leasing companies clear since the publication of the Future of Rail white paper in July 2004, which said that competition had not materialised as envisaged.

The former rail regulator Tom Winsor, who has worked as a consultant with Angel Trains, described the referral as a politically motivated "unjustified assault" on the rail-leasing companies. "This is part of the tightening of the ratchet by government on the privatised railway as part of a policy of incremental renationalisation," he said.

He disputed the government's figure, which suggested that the rail-leasing companies had invested £4bn, and said it was more like £6bn. "Profits of £150m or £165m a year on that level of investment is a pretty modest amount," he said. "There is a danger that investment in new rolling stock will be jeopardised."

• 187 Privatization