LABOUR’S case for renationalising the railways is strong. But even after this renationalisation, all the actual trains themselves will still be privately owned. Recently published accounts for Angel Trains — one of the three companies that own our trains — show why this is a problem.

Labour’s renationalisation case is this: since Covid, passenger numbers collapsed and are only now beginning to recover. Without passengers, the train firms would have gone bust, so the Department for Transport gave the train operating companies — the firms that you buy a ticket from and run the trains, like Northern, Southern, Thameslink, or Crosscountry — new contracts.

Private train operators still run the railways, but the government collects all train fares, paying rail operators with a mix of those fares and taxpayer subsidies to make up the shortfall. That subsidy is huge, around £30 billion since 2019.

The train operating companies, or TOCs, take the subsidy and pay dividends to their shareholders out of it. Labour argues that if TOCs depend on huge public subsidies, they should be taken back into public ownership.

Public money will stop leaking out of the companies via dividends into investors’ hands, and can be reinvested in rail. Replacing a patchwork of regional rail operators with one national firm could also bring more efficient, co-operative work across the whole network.

The TOCs run the rail firms on time-limited “franchises,” so Labour plans to simply take each TOC back into public ownership when those rail firms’ franchises run out over the next five years.

However, these TOCs don’t own their trains. The 1994 privatisation of publicly owned British Rail fragmented the railways, selling engines and carriages cheaply to separate “rolling stock companies” or Roscos.

Angel Trains, Porterbrook and Eversholt were the three Roscos formed in 1994 which still dominate the market, leasing old British Rail trains among their more modern stock. They don’t build trains, they are basically middlemen who buy the trains and then lease them to the TOCs. Taxpayers subsidise the TOCs who then lease trains from Roscos.

It’s a big money maker. Angel Train’s latest accounts, released this week, but covering the year to December 2023, show the firm paid £110 million in dividends to its owners. The previous year it paid them £124.6m. So money from the publicly funded — and soon publicly owned — railway flows to Angel Trains and out to its owners.

Angel Trains overall turnover was £339m, so the dividend was equal to nearly a third of its total income — the firm is very committed to rewarding its owners.

Angel Trains is not worried about renationalisation. The Tories already did some limited, temporary nationalisation, taking obviously failing lines like Transpennine back into public ownership.

Angel Trains says the “impact” of this move “on the company remains broadly beneficial.” The government have stepped in, but its business of renting out trains remains stable.

Its annual accounts suggest it wasn’t worried who would win the election. They say the Rosco model looks secure because “both the Conservative and Labour parties acknowledge the value that private investment in rolling stock and rail infrastructure can bring the wider economy.”

Angel Trains, like so much privatised British infrastructure, is foreign-owned. Since 2021, PSP Investments, the Canadian public-sector pension fund, has been the main owner, holding about 64 per cent of Angel Trains.

Chancellor Rachel Reeves recently said she wants to encourage the “Canadian model” of big pension funds investing in British infrastructure, but Angel Trains shows, yet again, that these can be as keen to suck cash out of the public sector as other big private investors.

A minority stake of about 10 per cent of Angel Trains is held by investment firm Amber Infrastructure, which in turn is largely owned by the family firm of Texan oil billionaire Woody L Hunt and his relatives.

Amber Infrastructure makes clear why it likes Roscos. Its website describes how Angel Trains’ business was made out of rail privatisation.

“However, it is the TOCs that are responsible for the operation of the train services under agreements with the Department for Transport. As a result, their lease revenues are largely unaffected by changes in passenger numbers.”

A train business which is “largely unaffected” by how many passengers buy tickets, that will deliver regular income without worrying about getting folk from A to B is very attractive to investors.

In July 2024, British asset management firm Arjun Investments, working with the University Pension Plan Ontario, bought a 10 per cent stake in Angel Trains, an example of another Canadian pension firm enjoying an easy ride.

Labour’s renationalisation plans are good: they will stop the TOCs handing over cash to their shareholders for poor, subsidised services. They could bring efficiencies of a nationally integrated service. We should support them, especially if the Treasury tries to delay them by allowing the private franchises to run longer than necessary, or try and get the Department for Transport to run the nationalised services as if they were competing businesses rather than a unified public service.

But they are limited. The 1994 privatisation broke the rail into three parts: the railways, the train operators and the trains. The railways were renationalised in 2002 because the privatised Railtrack let too many passengers die in crashes. The TOCs will be renationalised over the next five years. But the trains will remain privately held by the Roscos.

The Roscos are a study in what economists call “rent seeking,” where businesses grab money by manipulating the social or political environment to squeeze money for someone else rather than creating new wealth with increased productivity or innovation.

There is a real danger that Labour will not only allow “rent seeking” to go on in areas like the Roscos or water firms, but will also encourage more “rent seeking” if, say, the National Wealth Fund backs private investment that is reminiscent of the old private finance initiative.

The fact that some Labour MPs are personally involved in the most literal rent seeking, such as bad landlords like Jas Athwal, brings this danger closer.

Follow Solomon on X @SolHughesWriter.