Competition inquiry puts extra Virgin Rail seats in jeopardy

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Sir Richard Branson's plans to add 10 million seats to his train services on the flagship London-Glasgow route are in disarray after the company providing the extra coaches refused to press ahead with the deal.

Angel Trains, part of the Royal Bank of Scotland, has pulled out of negotiations with Virgin Rail because rolling stock leasing companies (Roscos) are expected to be referred to the Competition Commission.

The leasing company has told ministers it will not spend about £180m buying the extra carriages if there is uncertainty about the rental it will be able to charge in future.

Last year the Department for Transport called on the Office of Rail Regulation (ORR) to review the earnings of Roscos after widespread allegations of profiteering. The ORR found the leasing sector had "higher prices and lower quality of service than would be the case in a more competitive market" and has indicated that it will refer the issue to the Competition Commission by the end of March.

While it is possible that the deal will go ahead after the Commission's investigation, Angel Trains might pull out altogether if it believes new terms make the deal unprofitable.

Sir Richard's aim is to provide the two extra carriages on his 53 Pendolino trains in time for a new timetable due to start in December next year. Plans to run 30 per cent more services on the route - providing an extra 10 million seats - are expected to go ahead. But Sir Richard's ambition of adding a total of 20 million seats, with the help of the two extra carriages, is in question.

Virgin Rail spends £170m a year on leasing payments for rolling stock that operate on the West Coast main line. Projects to lengthen platforms at three stations to take the longer train on the West Coast main line have also been put on hold. Critics of the privatised industry have accused the four Roscos of having a stranglehold on the network which they have used to impose huge rental rates.

More supportive industry sources believe that while high charges were levied for old rolling stock at the beginning of privatisation 10 years ago, more equitable rentals are being levied on modern trains. A spokeswoman for Angel Trains, said: "We are awaiting the results of an investigation into the train rolling stock market. It therefore makes investment decisions difficult until such a time that we can understand the returns we can expect on the investment.

Domination of the industry by the leasing companies is being undermined by Transport for London. The capital's transport authority is buying its own trains for routes it has taken over in north London.