if the current "big three" are making excessive profits, it's interesting that nobody else has tried to muscle in on the market.
That's a good point, but I can see reasons why the current ROSCOs make excessive profits but new entrants wouldn't. I'll try to explain my thinking:
The problem, I think, is tied to supply and demand. The supply of rolling stock in general (and diesel multiple units in particular) at present only just meets the level of demand (or, depending on how you look at it, is not sufficent to meet the demand). This means, even if one ROSCO reduces their lease costs to undercut the others, the other (more expensive) ROSCOs will still get their trains leased since there is no other source of stock (unless TOCs find it's better for them to buy their own rolling stock for a 10-15 year franchise, which is absurdly unlikely). Therefore, there is no reason to undercut the other ROSCOs, because they know the other ROSCOs cannot supply the whole market.
The amount by which you would have to increase the supply of rolling stock to have really effective competition between ROSCOs is crazy. I expect having a large fleet of unused, un-earning, assets as expensive as trains is a complete non-starter. There's enough doubt raised on this fourm over whether a small number of reserve trains used for running extra services to cater for increased passenger flows for summer holidays, large concerts/festivals and sports fixtures would be viable, whenever I have suggested there should be such stock, let alone having stock that could potentially not be used for years because other ROSCOs have won all the leasing contracts for the time being.
Another possible issue is that new entrants could have difficulty breaking into the market, since TOCs will normally have existing contracts with existing ROSCOs. It could be quite a while after purchasing any assets that a newcomer wins a train supply contract and starts earning income. In other words, starting a ROSCO is a MASSIVE risk, but for the existing ones the income is great since almost nobody can afford to take such a big risk and increase the level of supply to create competition.
Not sure why the stock should be "free" though?
If the state owned the stock, and charged the TOCs a lease fee, the TOCs will simply require higher subsidies/lower premiums for the state (and the TOCs might add a small profit margin while they're at it), exactly the problem with the TOCs having to pay lease fees to the ROSCOs, they pass their increased costs on to the state. With the state charging lease fees, the money would just be going in circles, and presumably there would be a cost (staff?) in managing those transactions. Much simpler in my opinion just to let the TOC have a lease on the stock, at no cost, as part of the contract for the consession/franchise.
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Given the outcome of the competition commission enquiry, the ROCSOs almost certainly aren't doing anything wrong, at least not anything illegal. It is just they exist in a market where there probably cannot be any competion, so they can charge alot for leasing.
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The cost of trains seems to be the big issue, bus companies own their own buses and bid for contracts from local authorities to use them. I have wondered whether a similar model could work for rail, but I expect the costs of trains are too high to permit this.
The point I believe BestWestern is trying to make is also a good one. When trains become life-expired, the government would have to purchase new stock in the suituation I'm advocating, wheras it is presently the ROSCOs who have to pay up for the stock and make their money back in leasing costs (indirectly paid by government). Basicly, the ROSCOs allow government to spread the cost of trains over many years, rather than purchasing stock directly with large lump sums. However, the leasing costs don't stop once the cost of the trains have been paid for, nor even once the ROSCOs have made a specified amount of profit, it just goes on and on, so the governement ends up paying much more than the purchase cost of the trains, but perhaps less in any given year than a year in which a stock order is necessary in the state-owned-stock scenario. The other option is for the government to spread the cost of purchasing the stock with a loan. Like ROSCOs, this spreads the cost over time, unlike ROSCOs the repayments will stop once the loan (plus interest of course) is repaid.
The big questions this leaves are:
- Would taking out loans to pay for stock work out cheaper than ROSCOs? (I'd say almost certainly) and
- Could the government afford to actually pay for new rolling stock up front, without needing to spread the cost over time? (probably not, at a guess)
