Rail regulator to investigate train leasing firms

The Government was accused yesterday of jeopardising future investment in new railway rolling stock after it ordered a monopolies investigation into the UK's three train-leasing companies.

The Department for Transport said it had asked the Office of Rail Regulation to conduct an inquiry into the £1bn-a-year market because of concerns that "excessive" charges are being levied on train operators by the three leasing companies, all of which are now owned by banks.

Although the referral was made under the Enterprise Act, which has criminal law powers to fine and imprison individual executives for collusion, the ORR is not investigating cartel-style activities but market abuse.

If the ORR decides there is market abuse, it can refer the leasing industry to the Competition Commission which could in turn lead to the break-up of the three companies - Angel Trains, Porterbrook and HSBC Rail. Angel is owned by Royal Bank of Scotland and Porterbrook is owned by Abbey, now part of Banco Santander.

DfT officials said the train operators were being overcharged by at least £50m a year because of a lack of effective competition between the three leasing companies. In particular, they claimed train operators were being made to pay excessive prices for leasing ex-British Rail rolling stock, some of which was more than 60 years old.

However, Tom Winsor, the former Rail Regulator who is acting as legal adviser to Angel Trains, accused the Government of "a politically motivated assault on the most successful part of the privatised railways".

Mr Winsor, who works for the law firm White and Case, added: "There is a danger that investment will be delayed or deterred by the uncertainty caused by this competition inquiry. The Department for Transport may have shot a bullet into its own foot."

He said at no time during his tenure as Rail Regulator had he received any complaint about the level of rolling stock leasing charges. Mr Winsor also said the leasing contracts had all been renegotiated as recently as April 2004 under the supervision of the DfT's Strategic Rail Authority and with its approval, and yet within three months the Government had begun making noises about investigating the industry. "What does that say about the sanctity of a contract with the Government?" he asked.

The leasing companies said they had invested £4bn in new trains in the decade since rail privatisation and had leased assets worth a total of £7bn. Annual profits from this amoun-ted to £165m, which could hardly be described as "excessive".

But the department argued it had a duty to ensure best value for taxpayers and passengers, who ultimately paid for the leased trains. It said the returns the leasing companies were achieving on ex-BR stock - which accounts for 60 per cent of the 12,500 units in service - were "contrary to what would be expected if the market was competitive".

The DfT opened negotiations with the three leasing companies in the spring of last year to try to negotiate a reduction in the charges, but said it was now necessary to consider a Competition Commission referral to bring the matter to a conclusion.

The ORR has three months to conduct its market study. After that it can conduct a further investigation lasting six to 12 months, refer the industry to the Competition Commission, or give it a clean bill of health.

The original sale of the three leasing companies was mired in controversy after the BR managers who bought the businesses made fortunes by selling them on. Sandy Anderson of Porterbrook made £33m while Andrew Jukes of Eversholt pocketed £20m and John Prideaux of Angel Trains netted £15m.