Should trains be leased?

[507020]

Moderator note - split from

Class 175 future speculation

I thought I'd make a thread to discuss/post ideas or rumours about where the 175 fleet will end up after they leave TfW. Will the fleet be split between operators? Will it be to one or more of the rumoured suspects (EWR, Northern, GWR, ScotRail, Chiltern, Cross Country), or any other TOC you...

www.railforums.co.uk

Not overcharged for the leases, resulting in WMT calling their bluff and replacing units which are perfectly good and very popular (yes, even the /2s) with new ones, and then those /2s as yet having no home.

Trains shouldn’t even be leased. Once they are bought, there should be no ongoing costs for the operator other than maintenance unless they want to refurbish them, which is what they should have been able to do, with 2+2 seating to match the rest of the fleet. The need to store the 350/2s in turn consigned the 365s, which were equally perfectly good to the scrapyard. Hopefully there will shortly be some new electrification or Siemens will be able to come up with some batteries to allow them to replace Diesels.

 

[JonathanH]

Trains shouldn’t even be leased.

Where does the money come from? Even in British Rail days, in the early 1990s before privatisation, John Prescott was on record as saying British Rail should use leasing as a means of acquiring rolling stock because there wasn't any government money on the table for fleets British Rail wanted to introduce.

Once they are bought, there should be no ongoing costs for the operator other than maintenance unless they want to refurbish them, which is what they should have been able to do

The other option is borrowing the money. In theory leasing has an advantage that you can give up the trains at the end of the lease if they are not needed any more.

 

[507020]

Where does the money come from? Even in British Rail days, in the early 1990s before privatisation, John Prescott was on record as saying British Rail should use leasing as a means of acquiring rolling stock because there wasn't any government money on the table for fleets British Rail wanted to introduce.

The government may have thought so as a means to avoid capital expenditure, but BR itself was aware how much more expensive a leasing model would be than to buy trains outright or build them itself.

The other option is borrowing the money. In theory leasing has an advantage that you can give up the trains at the end of the lease if they are not needed any more.

The advantage of borrowing to finance them, especially for older fleets is that there would come a time when they had been paid off, which does not happen with leasing. If the cost of the 350/2s had been financed over 15 years, they would have been paid off by now with the money available for a comprehensive mid-life refurbishment and from then onwards they would be able to be operated much more cheaply. Instead we have perfectly good mid-life fleets being abandoned in favour of ones with cheaper leases, which is immensely wasteful and should not be allowed to happen.

 

[SynthD]

You’re thinking of the total life cost, not the within-my-career cost. You’re too far sighted.

Overcoming that (and money demands from other departments) leaves us with the one obvious and correct answer you have.

 

[Dai Corner]

Who are you suggesting buys the trains?

The TOC's, by borrowing the money? They'd have to sell them on if they lost their franchises or wanted to buy new stock though. The cost and risks would have been reflected in their franchise bids.

Governments, borrowing the money? They can generally borrow more cheaply than TOCs, ROSCOs or manufacturers but Government debt is considered a bad thing by some.

Governments, by raising taxes or cutting other expenditure? Would many vote for nicer trains if it meant higher taxes or less spent on schools, hospitals or welfare?

 

[Bletchleyite]

Governments, borrowing the money? They can generally borrow more cheaply than TOCs, ROSCOs or manufacturers but Government debt is considered a bad thing by some.

Mostly those who don't understand what it is. If I buy £500 worth of Premium Bonds, that's £500 of Government debt. It doesn't involve them taking out a personal loan.

Government debt, like personal debt, is only bad when it's used to pay operational (living) rather than capital costs.

This is the correct answer, and does seem to be coming back to the fore, e.g. Merseytravel buying the 777s instead of leasing them.

 

[507020]

This is the correct answer, and does seem to be coming back to the fore, e.g. Merseytravel buying the 777s instead of leasing them.

Has Nexus also bought the 555s using the same model?

 

[tbtc]

I've no problem with leasing trains

First/Stagecoach etc tend to buy buses that they expect to run for the life of the vehicle but still arrange a number of new builds with leases rather than outright purchases - if you are a big enough organisation you can probably borrow at a fairly cheap rate

Insisting that everything needs to be purchased in it's entirety up front seems a recipe for making things unaffordable for a number of projects

If the cost of the 350/2s had been financed over 15 years, they would have been paid off by now

True, but how likely is it that you'd finance assets with an expected life of forty years over just fifteen?

 

[507020]

True, but how likely is it that you'd finance assets with an expected life of forty years over just fifteen?

It seems like a good idea to me since a lot of money would be freed up at a convenient time to carry out a mid life refurbishment and then finance more new trains to replace older ones which you may be running. Not many operators have a fleet which is all the same age.

 

[43096]

It seems like a good idea to me since a lot of money would be freed up at a convenient time to carry out a mid life refurbishment and then finance more new trains to replace older ones which you may be running. Not many operators have a fleet which is all the same age.

You do realise that all you're doing is front end loading the cost of new trains? They still have to be paid for by hard cash at some point.

 

[507020]

You do realise that all you're doing is front end loading the cost of new trains? They still have to be paid for by hard cash at some point.

Yes but they don’t have to continue to be paid for indefinitely after the operator has already paid more than their total value several times over.

 

[HSTEd]

A long term lease agreement is just as much a future call on public money as replaying government bonds would be.

Leasing is just an attempt to conceal the amount of public borrowing by converting it into far more expensive private borrowing through what amounst to a PFI.

This is a very bad idea.
If the government wants trains, it should buy them.

 

[43096]

A long term lease agreement is just as much a future call on public money as replaying government bonds would be.

Leasing is just an attempt to conceal the amount of public borrowing by converting it into far more expensive private borrowing through what amounst to a PFI.

This is a very bad idea.
If the government wants trains, it should buy them.

Leasing is cheaper than a PFI. Just look at IEP and the Thameslink programme: we’re paying way over the odds because they are PFI type contracts.

I would also ask: if leasing is such a bad idea why are railways (including state owned) increasingly leasing their trains? It’s an idea exported from Britain…

 

[507020]

A long term lease agreement is just as much a future call on public money as replaying government bonds would be.

Leasing is just an attempt to conceal the amount of public borrowing by converting it into far more expensive private borrowing through what amounst to a PFI.

This is a very bad idea.
If the government wants trains, it should buy them.

The problem is that the government seems to want there to be trains, but doesn’t want to have them itself, or for the operators to have them, leading to this colossal waste of money for all involved. For the whole life cost of a leased train (excluding maintenance and running costs) a much higher specification one could be bought outright.

 

[Dai Corner]

The problem is that the government seems to want there to be trains, but doesn’t want to have them itself, or for the operators to have them, leading to this colossal waste of money for all involved. For the whole life cost of a leased train (excluding maintenance and running costs) a much higher specification one could be bought outright.

Should the Government borrow the money to buy the trains, in which case you need to take into account the interest payable, perhaps long after the trains have been scrapped? Or should it raise taxes or cut expenditure on, say, the NHS, education, welfare or public transport?

What's the difference between a TOC owning a train and a ROSCO owning it and leasing it to a TOC?

 

[507020]

Should the Government borrow the money to buy the trains, in which case you need to take into account the interest payable, perhaps long after the trains have been scrapped? Or should it raise taxes or cut expenditure on, say, the NHS, education, welfare or public transport?

What's the difference between a TOC owning a train and a ROSCO owning it and leasing it to a TOC?

“Should the government cut expenditure on public transport to borrow the money to buy the trains?”

The difference is that when that TOC e.g. Virgin Trains loses the franchise, it can’t refuse to allow the next operator to use its trains. A ROSCO will jump at the opportunity to continue to charge leasing fees, including once the assets have been more than paid off and it is pure profit, money which could go to the taxpayer or be invested in more new trains.

 

[Bletchleyite]

Should the Government borrow the money to buy the trains, in which case you need to take into account the interest payable, perhaps long after the trains have been scrapped? Or should it raise taxes or cut expenditure on, say, the NHS, education, welfare or public transport?

What's the difference between a TOC owning a train and a ROSCO owning it and leasing it to a TOC?

The difference, which is why I only buy cars using unsecured personal loans rather than whatever funding scam is currently the vogue, is that when you have paid the loan off the asset is yours to do with as you wish.

I typically buy cars with a 3 year loan but keep them for about 5, which means two years with no loan payment.

 

[Dai Corner]

“Should the government cut expenditure on public transport to borrow the money to buy the trains?”

The difference is that when that TOC e.g. Virgin Trains loses the franchise, it can’t refuse to allow the next operator to use its trains. A ROSCO will jump at the opportunity to continue to charge leasing fees, including once the assets have been more than paid off and it is pure profit, money which could go to the taxpayer or be invested in more new trains.

Thats not what I said/meant. If Governments paid for £1bn worth of trains up front they'd have to find the money from somewhere. One way might be to cut operating subsidies and buy and run fewer trains.


TOC-owned trains would be sold on to the new operator at the end of a franchise.

== Doublepost prevention - post automatically merged: 8 Mar 2022 ==

The difference, which is why I only buy cars using unsecured personal loans rather than whatever funding scam is currently the vogue, is that when you have paid the loan off the asset is yours to do with as you wish.

I typically buy cars with a 3 year loan but keep them for about 5, which means two years with no loan payment.

I buy my cars for cash and typically keep them until I'm offered a good trade-in deal. I can do that as I have saved up; something UK Governments never do.

 

[HSTEd]

Thats not what I said/meant. If Governments paid for £1bn worth of trains up front they'd have to find the money from somewhere. One way might be to cut operating subsidies and buy and run fewer trains.


TOC-owned trains would be sold on to the new operator at the end of a franchise.

They have to find the money up front, but they save lots of money in the medium to long term.
Given that this is a state that spends north of £800bn per annum even before coronavirus, it's more now, do you really think they can't find a billion for trains when it saves them two billion in the long run?

Leasing is a political choice to allow the chancellor to lie to the public about public borrowing, nothing more.

 

[Dai Corner]

They have to find the money up front, but they save lots of money in the medium to long term.
Given that this is a state that spends north of £800bn per annum even before coronavirus, it's more now, do you really think they can't find a billion for trains when it saves them two billion in the long run?

Leasing is a political choice to allow the chancellor to lie to the public about public borrowing, nothing more.

They could find the money, by borrowing it, raising taxes or cutting expenditure elsewhere as I said.

I agree that leasing just hides public borrowing, it's been done for all sorts of things besides trains. Schools, hospitals, even roads.

 

[Bletchleyite]

I buy my cars for cash and typically keep them until I'm offered a good trade-in deal. I can do that as I have saved up; something UK Governments never do.

Government finances don't work like private ones, essentially because they can't* run out of money, they can just print it. There's little reason for them to save as such.

And Government borrowing isn't like you borrowing. For instance, if I buy £500 of Premium Bonds, I've lent the Government £500.

* Odd US laws that cap borrowing/quantitative easing at absolute figures aside.

 

[Dai Corner]

Government finances don't work like private ones, essentially because they can't* run out of money, they can just print it. There's little reason for them to save as such.

And Government borrowing isn't like you borrowing. For instance, if I buy £500 of Premium Bonds, I've lent the Government £500.

* Odd US laws that cap borrowing/quantitative easing at absolute figures aside.

The problem with 'printing money' is that it tends to cause high inflation as we're finding out at the moment. As a saver rather than a borrower I find I'm being 'taxed' as the value of my cash decreases.

Some countries do run a fiscal surplus and have a sovereign wealth fund, of course. Typically oil/gas producers such as Norway and some Middle East countries.

 

[Bletchleyite]

The problem with 'printing money' is that it tends to cause high inflation as we're finding out at the moment.

Current inflationary pressures are not being caused by QE but rather by increases in fuel prices which affect everything, because there is basically no product or service that exists that doesn't involve using some form of energy to produce it.

QE during COVID did very little because every country was doing it so exchange rates didn't shift.

 

[Dai Corner]

Current inflationary pressures are not being caused by QE but rather by increases in fuel prices which affect everything, because there is basically no product or service that exists that doesn't involve using some form of energy to produce it.

QE during COVID did very little because every country was doing it so exchange rates didn't shift.

All that newly created money has to go somewhere and it's typically ended up in property prices. Fortunately mine was all paid for years ago.

I wasn't referring to the value of my sterling deposits in dollars or euros but what they will buy. Interest rates have been lower than inflation rates for some time.

High inflation helps the argument for borrowing to buy trains as the debt effectively decreases as time goes on.

 

[MattRat]

I wasn't referring to the value of my sterling deposits in dollars or euros but what they will buy. Interest rates have been lower than inflation rates for some time.

High inflation helps the argument for borrowing to buy trains as the debt effectively decreases as time goes on.

You should never let yourself get in debt unless absolutely necessary. People try to rationalize being in debt, especially university fees, but at the end of the day, you still owe that money to someone, and that can give them a lot of power over you.

Just look at all the problems with getting rolling stock because TOCs are at the mercy of the leasing company.

 

[Dai Corner]

You should never let yourself get in debt unless absolutely necessary you control the currency. People try to rationalize being in debt, especially university fees, but at the end of the day, you still owe that money to someone, and that can give them a lot of power over you.

Just look at all the problems with getting rolling stock because TOCs are at the mercy of the leasing company.

Fixed that for you

 

[Bletchleyite]

All that newly created money has to go somewhere and it's typically ended up in property prices. Fortunately mine was all paid for years ago.

That is in some ways a good thing. Massively accelerating property prices aren't in and of themselves, but inflation makes your monthly payment less over time just as you want to start slowing your life down work wise and consider retirement. Ideally you want house price growth to be roughly the same as inflation.

I wasn't referring to the value of my sterling deposits in dollars or euros but what they will buy.

As a lot of stuff is done abroad these are irrevocably linked.

High inflation helps the argument for borrowing to buy trains as the debt effectively decreases as time goes on.

And houses, as above.

You should never let yourself get in debt unless absolutely necessary.

Debt for capital purchases where the loan reduces as the value does is absolutely fine if you can afford the payments. If you borrow to buy a car, for instance, and something happens to mean you can no longer afford it, you can sell the car and settle the loan. There's a small risk the car might experience an unaffordable catastrophic failure e.g. requiring a new engine thus wiping that out, but if you choose prudently and do all maintenance properly (and insure fully comp) the chance of that happening and you losing your job is fairly low, unless your job is predicated on your car in which case you probably want to buy a car in warranty or take out a warranty contract to ensure that doesn't happen.

Debt for houses (i.e. mortgages) is fine as the value of them always increases.

Debt for "opex" - "operating expenditure" - i.e. borrowing to buy bread and milk - is very, very bad. Fine to use a credit card for all spending of course if that is easier for you, but settle monthly.

People try to rationalize being in debt, especially university fees, but at the end of the day, you still owe that money to someone, and that can give them a lot of power over you.

University debt isn't real debt because you can't default on it. It's taken from your payroll, and if you stop earning you stop paying. It's de-facto a capped graduate tax.

The debate about whether that's the right way to fund university is slightly separate, of course.

Just look at all the problems with getting rolling stock because TOCs are at the mercy of the leasing company.

The problems getting rolling stock are pretty much solely because there isn't enough of what is needed. If you want old EMUs they are ten a penny. There are simply not enough 100mph doors-at-thirds DMUs.

 

[Dai Corner]

Debt for houses (i.e. mortgages) is fine as the value of them always increases.

Older readers may remember that that has not always been the case. I was in negative equity in the 1990s and many lost their homes after being unable to pay their mortgages. The recently built Bristol suburb of Bradley Stoke gained the nickname Sadly Broke as a result.

 

[Bletchleyite]

Older readers may remember that that has not always been the case. I was in negative equity in the 1990s and many lost their homes after being unable to pay their mortgages. The recently built Bristol suburb of Bradley Stoke gained the nickname Sadly Broke as a result.

To be fair I should have said "always increases long-term". If you don't think you'll live somewhere for about 10 years minimum (certainly 5) you are likely to be safer renting, and if you want to invest in housing and can afford it buying an investment property instead.

Of course interest rates have been given to the Bank of England to manage prudently rather than politically and so are unlikely to end up at those silly levels again.

 

[MattRat]

The problems getting rolling stock are pretty much solely because there isn't enough of what is needed. If you want old EMUs they are ten a penny. There are simply not enough 100mph doors-at-thirds DMUs.

And if TOCs bought their own stock instead of leasing, they could buy what they needed. With leasing, they have to rely on the lease company to buy the stock for them, and so are effectively at their mercy.