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					                   Railways: rolling stock
                   Standard Note:    SN/BT/3146
                   Last updated:     1 March 2010
                   Author:           Louise Butcher
                   Section           Business and Transport

Rolling stock leasing companies (ROSCOs) are the privately-owned bodies that own the
trains (or ‘rolling stock’) that run on Britain’s railways. ROSCOs do not operate the trains –
this is the function of the train operating companies (TOCs). Three ROSCOs were set up in
1994 at privatisation and were subsequently sold off in 1996. After subsequent sales all three
are owned by financial services groups. The ROSCOs are the one part of the railway that
has proven to be financially very lucrative.

In April 2007 it was announced that the ROSCOs would face a Competition Commission
inquiry following a referral from the Office of Rail Regulation. The final report was published
in April 2009, making several recommendations to Government.

In recent years, the Government has spoken of the need to invest in new, high-tech rolling
stock, such as the InterCity Express and Thameslink programmes. These projects are at
various stages of procurement and are subject to review following the Government’s
announcement on rail electrification in July 2009.

More information on rail-related issues, such as train fares, franchising and Network Rail, can
be found on the Railways page of the Parliament website.


1    Rolling stock leasing companies (ROSCOs)                                                2 
     1.1  Privatisation                                                                      2 
     1.2  Porterbrook Leasing                                                                4 
     1.3  Angel Trains                                                                       6 
     1.4  HSBC Rail (UK) Ltd                                                                 6 
     1.5  Diesel Trains Limited                                                              7 

2    Safety                                                                                  8 
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3       2003 rolling stock strategy                                                                                9 

4       Reports and inquiries                                                                                      9 
        4.1  National Audit Office, 2004                                                                           9 
        4.2  Transport Committee, 2004 & 2008                                                                    10 
        4.3  Competition Commission, 2006-09                                                                     11 

5       The future                                                                                               14 
        5.1  Rolling stock strategy and electrification                                                          14 
        5.2  Intercity Express Programme (IEP)                                                                   17 
        5.3  Thameslink rolling stock project                                                                    19 

1         Rolling stock leasing companies (ROSCOs)
1.1       Privatisation
The previous Conservative Government's proposals for privatising the provision of passenger
rolling stock were set out in January 1993 in Railway Privatisation: Passenger Rolling Stock.
Most of the privatisation changes were introduced on 1 April 1994, including the
establishment of three rolling stock companies – Angel Trains, Eversholt and Porterbrook –
to lease rolling stock to the new railway operators. At the time the British Rail (BR)
passenger fleet consisted of 11,000 vehicles ranging from brand new locomotives and
coaches to those that were nearing the end of their economic life. Each company was given
a portfolio of a similar mix of stock with a similar age profile. The new ROSCOs, as they
came to be called, would be responsible for acquiring new trains when needed. They were
not to have in-house maintenance capabilities but were responsible for specifying all
maintenance and for contracting with maintenance suppliers for all heavy maintenance and
refurbishment. The idea was that they should offer operating, rather than finance, leases
which meant they carried most of the risk of holding and maintaining the rolling stock.

In 1993 the BR passenger fleet was said to have a book value of some £2 billion. 1 The
proposed sale of the three companies was announced in March 1995 2 and bids for the
purchase of these companies were invited in May 1995. Details of the contracts for the sales
were announced on 9 November 1995 3 and were completed in early 1996. Eversholt and
Porterbrook were acquired by their managements with development capital backing while
Angel was bought by an external management team with the financial backing of Nomura

All three purchasers took on the existing train fleet and the Networker fleet on order at the
time. They were also reported to be in a position to arrange additional funding for the
continuing modernisation of the passenger railways through investment in new trains and
refurbishment of existing rolling stock. All the purchasers committed themselves to introduce
incentive schemes for employees, whether by way of participation in ownership or otherwise.

     DoT press notice, "New companies to manage passenger rolling stock after railways privatisation", 29 April 1993
     DoT press notice, "Mawhinney announces details of rolling stock sale", 20 March 1995
     DoT press notice, "Britain creates new train leasing market with £1.8 million sale", 9 November 1995

The actual sale price payable by the purchasers was approximately £1.8 billion but some
£800 million was also paid to the Government in cash as dividends from the ROSCOs before
the sale. The Government therefore maintained that total proceeds from the sale exceeded
£2.5 billion, while opposition parties accused the Government of selling the companies "on
the cheap". 4 However, some commentators – such as Roger Ford, then editor of Rail
Privatisation News and not known as a fan of privatisation – was quoted as saying "This has
to be a good deal for the taxpayer. We have got rid of a fleet of trains, two thirds of which are
geriatric, to the private sector for not a bad price". 5

In March 1998 the National Audit Office (NAO) published a report into the privatisation of the
ROSCOs. Sir John Bourn, then head of the NAO stated his belief that “the then Government
saw major advantages in an early sale … Their over-riding objective was to secure the sale
of the companies as soon as practicable in 1995”. Sir John further reported that the “chosen
timing of the sale probably had an adverse impact on proceeds”. 6 The NAO reported that it
would have been possible to undertake a comprehensive valuation of the rolling stock
companies on the basis of an analysis of cash flows, despite the absence of external
comparators. They calculated that at the time of privatisation the value of the companies’
future cash flows, under continuing public ownership, would have been £2.9 billion. The
value obtained by the Government (sale proceeds, risks transferred and possible tax
receipts) was considered to be only ‘up to £2.2 billion’. 7

The Public Accounts Committee also published a report on the privatisation of the ROSCOs.
The report concluded:

          We note that the timing of the sale of the ROSCOs and its sequence in the overall rail
          privatisation programme was a key factor in the loss of value to the taxpayer as
          demonstrated by the much greater price achieved for them by the new owners shortly
          after privatisation.

          We are concerned that the Department did not update their preliminary analyses of the
          cost of selling the ROSCOs ahead of the Train Operating Companies. More than a
          year ahead of the sale, they calculated the likely cost as being between £100 million
          and £300 million. The actual cost may have been much greater. We find their
          argument that there were too many uncertainties to arrive at a meaningful figure
          unconvincing. We are also surprised that the Department did not attempt an analysis
          of the wider benefits of early sale of the ROSCOs which they told us should be offset
          against the financial loss. We consider that the Department should have given more
          detailed consideration to the implications for value of the terms achieved.

More recently, concerns were raised about the possible impact the recession might have on
the ROSCOs. Some of the finance companies with shares in the ROSCOs were reportedly
facing difficulties because of the financial crisis. For example, Deutsche Bank announced in
February 2009 its first quarterly loss for half a century; 9 shares in HSBC fell dramatically after
it announced a rights issue in March; 10 and Lloyds TSB’s shares collapsed after October
2007 with a significant fall in February 2009 following the announcement of huge losses by

     "BR rolling stock sold "on cheap" for £2.5bn", The Guardian, 10 November 1995
     "BR's train fleet sold for £1.8bn", The Times, 10 November 1995
     NAO, Privatisation of the rolling stock leasing companies (session 1997-98), HC 576, 5 March 1998, p2
     ibid., p4
     PAC, Privatisation of the rolling stock leasing companies (sixty-fifth report of session 1997-98), HC 783, 10
     August 1998, paras 26 and 35
     “Deutsche makes first loss in 50 years”, The Guardian, 5 February 2009
     “HSBC shares dive 19% on record £12.5bn cash call”, The Times, 2 March 2009

HBOS. 11 All this led some to question whether the financial institutions involved would seek
to sell off parts of their ‘non-core business’ such as the rolling stock companies. The
Guardian reported on this in October 2008:

         An Abbey spokeswoman denied that [the sale of Porterbrook] had been a forced sale.
         "The reasoning behind selling Porterbrook is that it is not core to our retail banking
         business," she insisted (…)

         Angel Trains was owned by Royal Bank of Scotland, which sold the company in June
         to a consortium led by Babcock & Brown, an Australian investment firm. RBS sold the
         business in order to bolster its balance sheet after a £12bn share issue but the bank
         was overwhelmed months later by further turmoil in the financial markets and was
         forced to accept a government bail-out.

         HSBC owns the remaining significant player in the train-leasing market, HSBC Rail, but
         has appointed NM Rothschild to explore options for the business, including a disposal.

         HSBC, along with Santander, was considered to have escaped the worst of the credit
         crunch until recently, but its operations in the far east have come under strain since the
         credit crunch spread to Asia this autumn.

         Abbey was largely unaffected while its business in Spain and Latin America remained
         robust. However, Latin American markets have begun to panic as concerns have
         spread that their economies could suffer a wide-ranging and deep recession (…)

         Porterbrook dismissed fears that the sale, plus the recent pounds 3.6bn deal for Angel
         Trains, will delay plans to add 1,300 rail carriages to the British network by 2014.

         "The consortium has looked at this business in the context of future investment in
         rolling stock and I believe that they want to develop it along those lines," said Paul
         Francis, Porterbrook's managing director. The Department for Transport, which is
         commissioning the new carriages, said it was "confident" that the ownership changes
         would not affect its carriage programme.

Nothing seems to have come of it thus far.

1.2      Porterbrook Leasing
Porterbrook was initially bought by a Porterbrook management/employee buy-out (MEBO)
consortium for £528 million in January 1996. The MEBO sold the business to Stagecoach
Holdings for £826 million in August 1996 – a gain of £298 million. 13 When Stagecoach
announced that it was to buy Porterbrook, Brain Souter, the Chairman of Stagecoach, was
reported as saying he could reduce Porterbrook's spending on maintenance by up to 30 per
cent and he foresaw further savings through bulk purchases of components, some of which
were shared by Stagecoach's buses and trains. 14 There was media outcry when it was
calculated that the Porterbrook directors and city advisers would make vast sums from their
shares. The Managing Director was forecast to make £30 million in the seven months
between the management buy-out and the subsequent sale to Stagecoach. 15

     “Lloyds shares fall on nationalisation fears”, The Times, 16 February 2009
     “£2bn sale of train company raises fears for health of Banco Santander”, The Guardian, 28 October 2008
     op cit., Privatisation of the rolling stock leasing companies, para 4
     "Stagecoach bids for rail stock leasing group", Financial Times, 1 August 1996
     "The Great Train Robbery", The Sunday Times, 4 August 1996

The Rail Regulator 16 immediately announced a review of the competition issues and warned
the bid might be referred to the Monopolies and Mergers Commission (MMC). 17 He stated
that the takeover raised important public interest issues relating to investment in rolling stock,
future competition in rolling stock services and in passenger services. On 18 October 1996
the then Minister for Corporate and Consumer Affairs announced that he intended to refer
the merger to the MMC unless suitable, legally binding undertakings were received from
Stagecoach to cover the six principles of non-discrimination, confidentiality, provision of
information, cross-subsidy, co-operation with train operating companies, and separate
reports and accounting. The Director General of Fair Trading (DGFT) 18 set out the following
possible adverse effects of the merger:

          Although the merger has not involved any loss of competition at the horizontal level,
          the vertical link which arises from ownership both of a rolling stock company and train
          operating companies does give rise to concern. Accordingly, I consider that adverse
          effects arise both now, at the initial stage of passenger train franchising, and at the
          later stages of franchise renewal and open access operation. While I recognise the
          argument that it may not be in the commercial interests of the new group as a whole to
          offer Porterbrook's customers terms which are materially dissimilar to those given to
          Stagecoach train operating companies (TOCs), the vertical link creates both the
          opportunity and incentive for the new group to operate to the detriment of the interests
          of potential or actual competitors and, ultimately, to rail users. Accordingly, I consider
          that the merger may be expected to lead to higher levels of subsidy and rail fares and
          to a reduction in the quality, availability and frequency of rail services through the
          following effects:

          (i) the possibility of discrimination by Porterbrook against actual or potential
          competitors to Stagecoach TOCs; and by Stagecoach TOCs against competitors of

          (ii) the possibility that information obtained either by Porterbrook or by Stagecoach
          TOCs, as the case may be, may be obtained and misused to the detriment of potential
          or actual competitors;

          (iii) the possibility that cross-subsidisation may occur between different members of the
          Stagecoach Group;

          (iv) the possibility that Porterbrook will not co-operate with potential or actual
          competitors of Stagecoach TOCs, thus giving Stagecoach TOCs an improper
          advantage both at the stage of bidding for franchises and in protecting themselves
          from open-access entry once that becomes possible. 19

On 23 December 1996, the Minister announced that he had accepted satisfactory
undertakings from Stagecoach and that the acquisition would not be referred to the MMC. 20
His decision was in accordance with the advice he had received from the DGFT and would
be reviewed after five years.

     the rail regulator was reconstituted as the Office of Rail Regulation in 2004 following the Railways and
     Transport Safety Act 2003; for more information see Library Standard Note SN/BT/2071
     ORR press notice, "Rail Regulator to consult on proposed merger", 31 July 1996; the MMC is now the
     Competition Commission
     now the Office of Fair Trading
     from DGFT advice, attached to: DTI press notice, "Stagecoach/Porterbrook merger: John Taylor accepts
     undertakings from Stagecoach", 23 December 1996

The company was later sold to Abbey National Treasury Services plc in April 2000 for £1.3
billion. 21 In October 2008 Abbey National sold it to a consortium led by Deutsche Bank (and
including Lloyds TSB and BNP Paribas) for an estimated £1.4 billion. 22 In February 2009 OP
Trust Private Markets Group (a Canadian company which also owns rail equipment) was
cleared by the European Commission to take joint control of Porterbrook. 23

1.3      Angel Trains
Angel Trains (formerly known as Angel Train Contracts) was bought for £696 million by GRS
Holding Company Limited in January 1996. GRS was a consortium comprising Prideaux &
Associates (a railway consultancy company), Babcock & Brown and Nomura International
plc. The funding was arranged and underwritten by Nomura International plc, the UK-based,
wholly-owned subsidiary of Nomura Securities Co. Ltd.

Shortly after the original sale GRS sold their right to part of Angel Trains income for some
£690 million. In December 1997 GRS sold the remainder of the business to the Royal Bank
of Scotland Group for £395 million, thereby valuing Angel Trains’ business at some £1.1
billion, a gain of £389 million. 24 In June 2008 RBS sold Angel to a consortium led by Babcock
& Brown (and including Deutsche Bank and Australian investment funds) for £3.6 billion. 25

1.4      HSBC Rail (UK) Ltd
HSBC Rail was established on 21 March 1994 as Eversholt Leasing. Eversholt was acquired
by the Eversholt MEBO consortium for £518 million in February 1996. A further £80 million
was deferred and became payable when specified technical and financial performance
thresholds were achieved by the fleet of 164 new Networker Express vehicles on order from
ABB. The consortium invested £70 million in equity. The management and employees
shared in up to 15 per cent of the equity share capital through subscription for shares and
option schemes. The debt was arranged by Deutsche Morgan Grenfell and underwritten by
Deutsche Morgan Grenfell, Fuji Bank, Societe Generale and The Royal Bank of Scotland.

Eversholt had on order from ABB 41 four-car Networker Express trains. Twenty-five of these
new units were for West Anglia & Great Northern (WAGN) to operate on Kings Cross-
Peterborough services: the vehicles then being used by WAGN 26 were to be transferred to
LTS Rail to replace stock 27 on the line serving Fenchurch Street, Southend and
Shoeburyness. Sixteen other Networker Express units were ordered for South Eastern for
use on Kent Coast express commuter services’ 30 year old stock.

In February 1997 the company was sold to the Forward Trust Group, the leasing subsidiary
of HSBC, for £726 million, a gain of £208 million on the original price. 28 At the time, Forward
Trust already had an investment of £200m financing in new Northern Line trains for London

     “Stagecoach poised to sell Porterbrook”, The Independent, 20 March 2000
     “Deutsche Bank team buys UK rail stock group”, Financial Times, 27 October 2008
     “Commission approves proposed acquisition of Porterbrook Leasing Company by OP Trust, Deutsche Bank,
     Lloyds Bank and BNP Paribas”, Eumonitor, 5 February 2009
     “Ex-InterCity chief makes pounds 15m from Angel Trains sale”, The Independent, 18 December 1997
     “RBS gets £3.6bn by shunting off Angel Trains”, The Guardian, 14 June 2008
     approximately 10 years old
     almost 40 years old
     op cit., Privatisation of the rolling stock leasing companies, para 4

In late 2008 it was rumoured that HSBC was looking to sell HSBC Rail for approximately £2
billion. 29 No sale has occurred, however.

1.5       Diesel Trains Limited
In early 2009 the Government announced its intention to set up a new ROSCO to supply
rolling stock ‘on short notice’ as part of the spending programme announced in the
November 2008 Pre-Budget Report. A March 2009 letter from Bob Linnard, Director of Rail
Strategy at the Department for Transport, stated:

          DfT has set up a company, Diesel Trains Limited, to take the procurement forward.
          Following selection of the preferred manufacturer, it is currently anticipated that the
          following contracts will be put into place so as to enable the train building to begin as
          quickly as possible:

              •    three tripartite Manufacturing and Supply Agreements between Diesel Trains
                   Limited, the Manufacturer and each of the TOCs;

              •    three bipartite Technical Support and Spares Supply Agreements between the
                   Spares Supplier and each of the TOCs;

              •    three bipartite Rolling Stock Leases between Diesel Trains Limited and each of
                   the TOCs; and

              •    a single overarching Umbrella Deed signed by Diesel Trains Limited, the
                   Manufacturer, the Spares Supplier and the three TOCs.

          However, DfT does not see itself as, and does not wish to be, a long-term owner of
          trains. Moreover, DfT is not setting up Diesel Trains Limited in order for it to act as a
          rival for, or to compete against, current rolling stock leasing companies.

          Accordingly, DfT will be inviting the market to bid either for the company or for the
          assets and related contracts within it, and to take on the ownership and leasing of the
          trains. DfT would like to run this competition as soon as reasonably practicable.
          However, it is sensible to hold the competition when conditions in the financing market
          are more benign and therefore this may cause some delay. Details of the competition
          and timing will be published in due course. 30

The Government later published the remit and requirements for an Independent Expert to
consider and make recommendations as to the level of rental for Diesel Multiple Units
(DMUs) to be leased by Diesel Trains Limited to Train Operating Companies (TOCs). 31

However, in July 2009 the Government announced plans to electrify portions of the rail
network, with a knock-on effect for the procurement of new diesel units:

          This electrification programme radically affects the requirements for rolling stock over
          the next decade. There will be far less need for diesel trains and a greater requirement
          for electric trains. In particular, the previously-planned procurement by the Government
          of new diesel trains has now been superseded. We will accordingly publish a new
          rolling stock plan in the autumn, taking account of the changed circumstances. 32

     “Abbey and HSBC Rail set to offload rail groups”, The Sunday Times, 26 October 2008
     Letter from Bob Linnard to financiers of rolling stock, 5 March 2009
     DfT, Consideration of Diesel Multiple Unit rental for Diesel Trains Limited – final version of the remit, 22 June
     DfT, Britain’s Transport Infrastructure: Rail Electrification, July 2009, para 27

2        Safety
The Railways Act 1993 brought all railway safety legislation within the framework created by
the Health and Safety at Work Act 1974 (HSWA) and confirmed the Health and Safety
Commission (HSC) as the principal provider of policy advice to Ministers on railway safety
issues. The Office of Rail Regulation (ORR) has had responsibility for health and safety
issues since 1 April 2006, following the changes to the rail industry structure in the Railways
Act 2005.

A Memorandum of Understanding was signed by the HSC and the then Departments of
Transport and Environment on 10 October 1996. ROSCOs have several safety obligations
under the rolling stock leases signed in 1993. In his Review of the Rolling Stock Market,
published in May 1998, the Regulator provided the following summary:

         Rolling Stock Leasing Companies' (lessors) Obligations:

             •    Delivery of the rolling stock to the lessee in an agreed condition

             •    Allowing the lessee quiet enjoyment of the rolling stock;

             •    Procurement from contractors of heavy maintenance and heavy repair and
                  ensuring that rolling stock meets prescribed performance criteria immediately
                  following such maintenance or repair;

             •    Rectification of major faults and design or endemic faults, and paying those
                  costs not met by the lessee;

             •    Procuring and paying for any mandatory modifications required to rolling stock
                  by the safety regulatory authorities;

             •    Procurement of property damage insurance of rolling stock

         Train Operating Companies' (lessees) Obligations:

             •    Payment of rent to the lesser;

             •    Performance of running maintenance and repairs;

             •    Use of the rolling stock in accordance with the criteria specified in the lease

             •    Paying for major faults and design or endemic faults (in full up to specified
                  thresholds and on a shared basis thereafter);

             •    Insurance for the rolling stock against third party liabilities and repayment to
                  the lesser of premiums for property damage insurance;

             •    Indemnification of the lessor against losses relating to the leasing, use and
                  operation of rolling stock in certain circumstances;

             •    Return of the rolling stock to the lessor at the end of the lease period in the
                  condition specified in the lease supplement. 33

If mandatory modifications to rolling stock are required – normally for safety or operational
reasons – the relevant ROSCO is responsible for affecting and paying for them. During the

     ORR, Review of the Rolling Stock Market, May 1998

term of the initial leases, however, the Government agreed to share in the cost of mandatory
modifications above an agreed threshold. Up to ten per cent of the cost is payable by the
affected TOC, subject to a cap fixed by the Department (formerly the Franchising Director) at
five per cent of lease charge payable in respect of the relevant year. The ROSCOs are
subject to no regulatory requirements beyond those normally applicable to private sector
companies but are subject to both competition and monopolies law.

3        2003 rolling stock strategy
In its October 2002 report into overcrowding on public transport, the Transport Select
Committee recommended in strong terms that the Strategic Rail Authority (SRA) had ‘a duty’
to draw up a rolling stock strategy as ‘a matter of urgency’. 34 The SRA published its rolling
stock strategy in December 2003. 35 The report reaffirmed the leading role of the private
sector in the rolling stock market and clarified the role of the SRA. 36 Announcing the
Strategy, SRA Chairman, Richard Bowker, said:

         The private sector has brought clear benefits to the procurement, delivery and
         maintenance of rolling stock in Britain. Since 1997, the rolling stock market has
         delivered over £4 billion of new investment and procured 4,500 new vehicles for the
         network. It is not appropriate for the SRA to meddle where the market does a better
         job. The Strategy sets out a clear and limited role for the SRA - to ensure that there is
         an efficient and sustainable market for rolling stock supply that encourages innovation,
         and to let the market get on and deliver it.

The strategy concluded that the SRA should continue to support and facilitate the benefits of
private sector investment, commercial decision making and private risk-taking, by involving
itself in rolling stock markets in a “limited, clear and consistent way”. 38 Further, the Train
Operating Companies (TOCs) should continue to determine their choice of rolling stock fleet.
The strategy also stated that the SRA would set out high-level rolling stock performance
output specifications; ensure that future procurement processes allow sufficient time for
construction and delivery of rolling stock; work with TOCs to achieve good value for money
when renewing Master Operating Lease Agreements (MOLAs); and appoint a Director with
responsibility for co-ordinating delivery of the actions set out in the strategy. 39

4        Reports and inquiries
4.1      National Audit Office, 2004
In February 2004 the National Audit Office (NAO) produced a report on the state of Britain’s
rolling stock. The report concluded that although new trains were bringing significant benefits
to passengers, most were late entering service and the NAO thought it unlikely that the
statutory deadline of December 2004 for removing all the oldest slam-door trains from the
network would be met. The report also indicated that in the ten years since the Railways Act
1993 privatised the railways the 25 train operating companies (TOCs) providing passenger

     Transport Committee, Overcrowding on public transport (seventh report of session 2002-03), HC 201, 15
     October 2002, pp13-17
     SRA, Rolling Stock Strategy, December 2003
     SRA press notice, “Future of rolling stock lies in the private sector”, 19 December 2003
     the SRA was disbanded following the Railways Act 2005 and most of its responsibilities taken on by the
     Department for Transport; for more information see Library Standard Note SN/BT/1344
     op cit., “Future of rolling stock lies in the private sector”

rail services had ordered more than 4,500 new carriages worth some £4.2 billion, of which
over 2,000 had entered service. 40

The report also stated, however, that new trains were not bringing all of the passenger
benefits that they should. In particular, passenger groups considered that manufacturers and
TOCs had failed to consult sufficiently early with passengers, and had complaints about the
layout of some new vehicles and that new rolling stock was not always fully accessible to
passengers with disabilities. On some routes, passenger numbers had grown faster than the
number of carriages ordered and the railway infrastructure’s ability to accommodate more
frequent or longer trains. In addition, all of the TOCs that were running new trains
experienced reliability problems: most commonly concerning mechanical failure, on-train
computers and air conditioning. 41 The report also found that:

      •   bringing new trains into service is a complex task, involving at least nine
          organisations and 60 key stages;

      •   one of the reasons why new trains entered service late and had poor reliability was
          manufacturing and managerial difficulties due to a lack of steady demand for new
          trains in the two to three years leading up to privatisation; other reasons were a lack
          of organisational coherence within the rail industry and the absence of
          standardisation of the network and trains;

      •   there was a lack of information about the railway infrastructure, making it difficult for
          manufacturers to build trains compatible with the network;

      •   there was a lack of clearly defined pass/fail criteria for assessing safety risks; and

      •   because there was no national facility for testing trains off the network and finding
          time and space on the network to carry out tests is difficult, new trains were put into
          service without sufficient testing in all conditions, contributing to reliability problems
          when the trains were in service. 42

4.2       Transport Committee, 2004 & 2008
In April 2004, the Transport Select Committee produced a report into the future of Britain’s
railways. It offered the view that the reduction in the average age of rolling stock was
“modest” at only 16 months and made clear its concerns that “the market may not be acting
appropriately to provide rolling stock at economic cost”. 43

In July 2008 the Transport Committee published a report on the 2007 White Paper. This
raised concerns about both the procurement and deployment of rolling stock. On
procurement it said:

          It is entirely appropriate that strategic decisions about rolling stock procurement and
          specification should be taken centrally. Given the level of fragmentation of the industry,
          there is no other way to ensure sensible use of tax-payers' money for long-term
          investments such as rolling stock. However, we are concerned that the Department

     NAO press notice, “Strategic rail authority: improving passenger service through new trains”, 4 February 2004
     NAO, Strategic rail authority: improving passenger service through new trains (session 2003-04), HC 263, 4
     February 2004, paras 4-6
     ibid., paras 9-17
     Transport Committee, The future of the railway (seventh report of session 2003-04), HC 145, 1 April 2004,

          may not have adequate and appropriate expertise to handle such vital strategic
          decisions in-house, and to do so efficiently. Matters of such importance should not be
          left to expensive external consultants (…)

          We look forward to the Competition Commission's report on the rolling stock market in
          the UK, due in 2009. In the meantime, the Department must improve its rolling stock
          procurement strategy so as to create a stable and consistent pattern of procurement.
          By doing so, it will achieve the best value for money for tax payers, and it will ensure
          that Britain can continue to have a rolling stock industry.

And on deployment it said:

          The 1,300 new carriages pledged in the High Level Output Statement are much
          needed and very welcome. But it is clear that, due to the growth in rail patronage, the
          new stock is unlikely to relieve overcrowding significantly.

          We note how little new rolling stock is going to be available to areas outside London
          and the South East. We expect the Government to address this imbalance through the
          cascading of rolling stock throughout the system. It is essential that all rolling stock is
          well matched to the circumstances and requirements of individual lines and that old
          rolling stock is not replaced by newer, but less suitable cars. 45

4.3       Competition Commission, 2006-09
In June 2006 the Department for Transport made a complaint to the Office of Rail Regulation
under the Enterprise Act 2002. The complaint alleged that the features of the market for the
provision of rolling stock to TOCs prevents, restricts, or distorts competition. The ORR
consequently announced that it would conduct a market study to see whether there were
grounds to suspect that the rolling stock market was not working well and to determine
whether there was sufficient evidence to make a referral to the Competition Commission. 46
The ROSCOs were reported to be “furious” about the referral:

          One senior Rosco executive said: "You can't have a logical conversation with the
          transport department about level of risk or rates of return. All they say is 'give us some
          money'.'' [Hayden] Abbott [managing director of Angel Trains] pointed out that Angel,
          which made pounds 75m pre-tax profits last year, had invested close to pounds 3bn.
          "No single train operator has made a complaint,'' he said, adding the investigation was
          "a device by the Department for Transport''. Tom Winsor, the former rail regulator and
          an adviser to Angel Trains, said: "I think this is an unjustified political assault on the
          most successful part of the privatised railway. It's an attempt to turn the ratchet of state
          control over a private sector industry.''

The ORR’s findings were published in November 2006. The report stated that the ORR is
“minded to refer the supply of leasing of rolling stock for franchised passenger services and
related maintenance services to the Competition Commission (CC) for a market investigation
under section 131 of the Enterprise Act 2002 (EA02)”. 48 In summary, the findings were as

     Transport Committee, Delivering a sustainable railway: a 30-year strategy for the railways? (tenth report of
     session 2007-08), HC 219, 21 July 2008, paras 111 and 113
     ibid., paras 107-108
     ORR press notice, “Office of Rail Regulation receives complaint regarding the provision of rolling stock”, 28
     June 2006
     “Train leasing charges face probe”, The Daily Telegraph, 29 June 2006
     ORR, The leasing of rolling stock for franchised passenger services, 29 November 2006, p1

          ORR does not consider that these markets can be given a clean bill of health. We
          suspect that there are a number of features which individually or in combination
          prevent these markets from operating competitively. We consider that the low
          reference test has been met. ORR considers that in the balance of its statutory duties a
          reference to the CC is a proportionate and appropriate exercise of its discretion to
          refer, given the concerns that it has identified.

          The evidence that we have gathered during the course of our study has indicated that,
          in many instances, Train Operating Companies (TOCs) have very limited choice when
          it comes to selecting passenger rolling stock for franchised passenger services. In
          many cases, and for various reasons, a new franchisee has few attractive alternatives
          other than to re-lease the rolling stock previously in use within that franchise, providing
          the rolling stock leasing company (ROSCO) that owns that stock with a significant
          degree of strength in the negotiation of leasing terms. This, we suspect, has led to
          higher prices and lower quality of service than would be the case in a more competitive
          (…) we consider that what we have found warrants further investigation by the CC.

It did, however, state that:

          The lack of choice available to TOCs results from a number of factors (or ‘features’ for
          the purpose of a reference to the CC), which are either inherent to types of rolling stock
          or embedded in the way that Government procures franchised passenger services.

          (…) It is evident that a number of these features arise from Government policies. We
          recognise that the way in which DfT discharges its responsibilities for the procurement
          of passenger railway services is a matter for Government, and that franchising policy is
          driven by a number of considerations of which the terms on which rolling stock is
          leased is only one. These may not be amenable to change if the Government does not
          see net benefits in funding and/or performance terms in doing so.

On 26 April 2007 the ORR made its formal referral to the Competition Commission. 51 In
August 2008 the Competition Commission published its provisional findings. Its headline
finding was that the ‘very limited’ number of rolling stock options available to TOCs when
bidding for rail passenger franchises was restricting competition in the market for the leasing
of rolling stock. 52 In September 2008 the Department for Transport issued a response to the
provisional findings report and what were then possible remedies. It stated that:

          DfT remains of the view that the root cause of the AEC [adverse effect on competition]
          and the consumer detriment is the lack of uncommitted surpluses of suitable rolling
          stock which could credibly threaten to displace ROSCOs’ incumbent stock and so
          provide competition and drive down lease rentals. In DfT’s view, the AEC can be
          eliminated only by expanding the alternatives available to TOCs at the time of re-lease
          through the creation of such uncommitted surpluses or by constraining the ability of
          ROSCOs to set lease rentals at uncompetitive levels (…)

          However, the remedies mooted by the CC which explore changes to the way the
          franchise system is operated will not expand the alternatives available to TOCs to any
          meaningful extent, as they cannot be expected significantly to increase (overall) the
          amount of stock available to the rail passenger network. Therefore, even if a ROSCO

     ibid., p2
     ibid., p4
     ORR press notice, “Leasing of rolling stock for franchised passenger services”, 26 April 2007
     CC press notice, “Rolling stock leasing market investigation provisional findings”, 7 August 2008

         faces the possibility of displacement of incumbent stock on a particular franchise, the
         ROSCO does not face a credible risk of its stock not being required at all. 53

The CC is required under the Enterprise Act to consider remedies; its provisional decisions
on which were published in December 2008. 54 In January 2009 the Department responded to
the provisional decisions, expressing its disappointment that the CC had dismissed the
Department’s ‘far reaching remedies’ as ‘price controls’. 55

On 7 April 2009 the CC published its final report which concluded that competition in the
market for the leasing of rolling stock is restricted by the limited number of alternative fleets
available to TOCs when bidding for rail passenger franchises. The CC has identified several
factors which in combination have restricted the choice of rolling stock available for lease at
the point franchises are being let, including: technical and operational factors which limit
interoperability; costs and risks in switching rolling stock or introducing new rolling stock; and
aspects of the way in which the franchising system currently operates. The CC is of the view
that TOCs have in many cases little incentive or ability to negotiate with ROSCOs and
ROSCOs in turn have little incentive to compete with each other. In summary, the CC
proposed the following package of remedies:

         recommendations to the franchising authorities to make changes to the franchise
         system, wherever consistent with their other functions and objectives, to:

              •   introduce longer franchise terms (in the region of 12 to 15 years or longer),
                  which would allow TOCs to realize the benefits and recover the costs of
                  switching to alternative new or used rolling stock over a longer period, which
                  should increase the incentives and ability for TOCs to exercise choice;

              •   assess the benefits of alternative new or used rolling stock proposals beyond
                  the franchise term and across other franchises when evaluating franchise bids.
                  This will encourage a wider choice of rolling stock to be considered in franchise
                  proposals, irrespective of franchise length; and

              •   ensure that franchise invitations to tender (ITTs) are specified in such a way
                  that franchise bidders are allowed a choice of rolling stock;

         requiring the ROSCOs to remove non-discrimination requirements from the Codes of
         Practice, which would provide greater incentives for the TOCs to seek improved terms
         from the ROSCOs; and

         requiring rolling stock lessors to provide TOCs with a set list of information when
         making a lease rental offer for used rolling stock, which would give TOCs the ability to
         negotiate more effectively. 56

The ORR welcomed the report and urged the Department for Transport to “seriously
consider the CC’s recommendations”. 57 The Government’s response was published in July
2009; in conclusion it said:

     DfT, Response to the provisional findings report, 17 September 2008, paras 1.4 & 1.6:
     CC press notice, “Rolling stock leasing market investigation – provisional decision on remedies”, 16 December
     DfT, Response to the CC’s provisional decision on remedies, 27 January 2009, paras 2-7
     CC press notice, “Rolling stock leasing market investigation: final report”, 7 April 2009; the final report is
     available online
     ORR press notice, “Rolling stock leasing market investigation”, 7 April 2009

         The work that the CC has carried out makes clear that there are problems in the rolling
         stock leasing market which are having an adverse effect on competition, that ROSCOs
         in many cases have weakened incentives to compete on lease rentals, and that costs
         faced by TOCs (and hence taxpayers and passengers) could be higher than they
         should be.

         The CC has suggested that changes to the franchising system would foster
         competition in the market, and recommends that the franchising authorities “make
         changes to the franchise system, wherever consistent with their functions and
         objectives.” The Government welcomes this acknowledgement that in considering such
         changes, DfT would have to take account of a range of issues, not just the effect on
         the rolling stock market.

         When franchises are being re-let, DfT will consider carefully the potential for
         stimulating competition in the supply of rolling stock, while recognising that this is only
         one of a number of factors which determine how franchises are best designed in the
         interests of passengers and taxpayers. For each franchise re-let, DfT will specifically
         consider franchise lengths of over ten years. DfT will also introduce changes to the
         franchise evaluation and award process to take account of beyond-franchise benefits,
         where this is consistent with its wider rail responsibilities. And DfT will ensure that the
         potential impact on the rolling stock market is fully considered in specifying ITTs in the

         However, the Government notes that even if the CC’s recommendations could be fully
         implemented and were successful in improving competition, there is no doubt that they
         would take some time to take effect. In the meantime, DfT has an ongoing duty, as
         franchises come up for renewal, to ensure that taxpayers and passengers are
         protected from the consequences of the adverse effect on competition which currently
         exists in the rolling stock leasing market.

         DfT had asked the CC to consider whether price control might be an appropriate way
         to address consumer detriment. While the CC panel did not agree on whether controls
         to restrict increases of rentals are required in the short to medium term, the CC’s main
         report concludes that it would be open to DfT to seek its own legislative powers to
         influence or control rentals. DfT will closely monitor the rentals proposed when rolling
         stock is re-leased. While DfT currently has no plans to legislate, it will keep under
         review the option of seeking new powers to control prices should it prove necessary. 58

5        The future
5.1      Rolling stock strategy and electrification
Sir Rod Eddington was charged by the Treasury and the Department for Transport in 2005
with looking into the relationship between transport and the economy. He published his
report in December 2006. 59 Sir Rod looked at the benefits of increasing capacity through new
rolling stock. He concluded that to do so would represent a relatively high return for a
reasonable investment – and certainly for less investment than wholesale upgrades to the

         Upgrading rolling stock and lengthening trains on congested rail links, combined with
         changes to timetables to increase frequency can significantly increase the effective
         capacity of existing rail lines. Evidence of illustrative interventions to increase variable

     BIS, Government response to the Competition Commission's report, "Rolling Stock Leasing market
     investigation", July 2009, paras 31-35
     DfT, The Eddington Transport Study, December 2006

         capacity on inter-urban links into London by investing in new rolling stock, for example,
         suggests strong returns are possible from well-targeted interventions, with wider BCRs
         ranging between 1 and 13 and costs between £50 and £500 million but more typically
         between 1 and 3.28 The higher returns are largely driven by the ability to add variable
         capacity with minimal infrastructure requirements. 60

In July 2007 the Government published a new rail White Paper, Delivering a Sustainable
Railway, which included its high level output specification (HLOS); at the same time it also
published its Rail Technical Strategy document. 61 On capacity, the White Paper stated that
over 1,300 additional carriages, the Thameslink upgrade, major station works at Birmingham
and Reading and “an ambitious programme of platform lengthening, power-supply upgrades
and depot facilities” would be needed to cope with the “40 per cent demand growth of the last
decade and the 30 per cent projected for the decade ahead”. 62 The White Paper set out a
range of options to increase capacity and stated that a ‘one size fits all’ solution would be
inappropriate. 63 The Government also set out its aim for overall capacity increases by 2014,
which would include adding approximately 1,300 additional carriages, with associated
platform lengthening, power upgrades and additional depot facilities. This and the other
measures mooted were intended to deliver a modest five per cent increase in rail’s overall
CO2 emissions. 64

The purpose of the Rail Technical Strategy (RTS) was to establish and document an industry
view of the technical changes required on the rail network and to create what the
Government called a ‘road map’ showing how the required changes could be achieved. 65
Essentially, the RTS identified how technology could be applied to the railway to deliver
increased capacity, to improve sustainability and to achieve this within the affordability
criteria set out by the Government. This was followed in January 2008 by a rolling stock plan,
which provided additional detail about the deployment of new rolling stock. 66

In July 2009 the Secretary of State, Lord Andrew Adonis, announced an electrification
programme on the Great Western Main Line between London, Reading, Oxford, Newbury,
Bristol, Cardiff and Swansea, to be completed within eight years and the electrification of the
line between Liverpool and Manchester, to be completed within four years. 67 A consequence
of the electrification programme is that it radically affects the rolling stock requirements over
the next decade. In particular, there will be far less need for diesel trains and a greater
requirement for electric trains. The Government indicated that it would publish a new rolling
stock plan in autumn 2009 to take account of these changed circumstances. 68 However, at
time of writing (1 March 2010) this has yet to be published.

In December 2009 Lord Adonis made a statement about the future of the rolling stock
programme and updated the House on recent rolling stock procurements:

         In July I undertook to review the department's rolling stock plan in the light of the
         electrification announcements and other developments. The Government remain
         committed to providing an additional 1,300 carriages by mid-2014. Until commercial

     ibid., Vol. 3, para 4.166
     all of the relevant documentation can be found on the Department for Transport’s website
     DfT, Delivering a Sustainable Railway, Cm 7176, 24 July 2007, p38
     ibid., para 4.9
     ibid., para 4.22
     DfT, Rail Technical Strategy, 24 July 2007, para 1.1
     DfT, Rolling stock plan, 30 January 2008
     DfT, Britain’s Transport Infrastructure: Rail Electrification, July 2009, para 1
     ibid., para 7

negotiations on the Thameslink programme are completed, I am not in a position to
update the rolling stock plan, which is critically dependent on the determination of the
Thameslink rolling stock contract. However, I can give the following detail of recent and
projected rolling stock procurements:

Southeastern introduced 48 cascaded carriages in March 2009 as the first phase of
additional capacity to address the crowding of train services through London Bridge to
London Charing Cross and London Cannon Street. The specification for the second
phase is now being developed as part of the Thameslink Key Output 1 (December
2011) and Key Output 2 (December 2015) service patterns which are being discussed
with train operators;

the East Anglia franchise operator will take delivery of 120 new carriages for Stansted
Express services, as part of the department's agreement with the current train
operating company. This will enable the carriages currently forming these trains to be
redeployed to lengthen other services into London Liverpool Street. National Express
East Anglia is also deploying a further 68 cascaded carriages to lengthen existing
trains. In total 188 new and cascaded carriages will be deployed to increase capacity
into London Liverpool Street;

the first two phases of additional capacity on London Midland services have been
agreed. These involve the deployment of 28 cascaded carriages to lengthen trains and
also to operate more trains between Watford and London Euston during peak periods.
The third phase of the additional capacity for London Midland services is now being
developed with the train operator. This will focus on additional capacity into

extra capacity provision is included in the recently-announced Southern franchise. This
includes additional capacity into London Bridge and London Victoria over the next
three years using 128 cascaded carriages;

arrangements are almost finalised with First Capital Connect for the introduction of 41
carriages onto the services into London. The extra carriages will be introduced over the
next 12 months;

negotiations are underway with First Great Western to provide additional capacity on
services around Bristol. This is expected to involve additional cascaded carriages,
introduced over the next 12 to 18 months;

proposals for the provision of additional capacity into London Waterloo are being
negotiated with South West Trains;

the provision of additional capacity on the Shrewsbury-Birmingham route is being
developed with Arriva Trains Wales; plans for additional capacity on the Liverpool-
Nottingham route are being developed with East Midlands Trains;

the specification for a first phase of additional capacity on services into Leeds,
Liverpool, Manchester and Sheffield has been completed and is now being discussed
with Northern Rail and the relevant Passenger Transport Executives. Planning work is
also underway with Northern Rail and the Passenger Transport Executives to develop
a second phase scheme to address the further capacity requirements for these cities;
the specification for the new Essex Thameside (C2C) franchise in May 2011 will
include extra capacity requirements. The proposed specification will be published in
early 2010;the specification for the new Intercity West Coast franchise, due to start in
April 2012, will include a requirement to deploy the 106 new Pendolino vehicles on
order to increase capacity between London, Birmingham and Manchester;

         the current Transpennine Express franchise is due to end in February 2012, and the
         specification for its replacement will be developed over the next 24 months. This will
         include the deployment of new electric trains on the Manchester to Central Scotland
         route, allowing the diesel trains currently operating these services to be used to
         provide more capacity on the main trans-Pennine route; and

         Chiltern Railway's franchise agreement contains provision under Evergreen phases 2
         and 3 for extra capacity requirements to be delivered by 2014. Chiltern Railways has
         procured additional carriages to achieve this and further plans are now being
         discussed. 69

5.2      Intercity Express Programme (IEP)
As stated above, the White Paper specified that 1,300 new carriages would be purchased, to
relieve congestion, predominantly on urban services. The rolling stock plan states:

         It is expected that the vehicles for the Intercity Express Programme will meet the
         aspirations in the RTS for the next generation of vehicles for longer distance travel and
         inter urban routes. The IEP base case introduces approximately 90 full train length
         equivalent diagrams from 2013 to 2017. There are options for a further approximately
         50 full train length equivalent diagrams for introduction between 2014 and 2018. The
         procurement for the IEP is led by DfT with industry stakeholder involvement, including
         TOCs and Network Rail to deliver lowest whole life and whole system cost. The
         winning bidder will be responsible for design, manufacturing, financing, long-term
         maintenance plus operational reliability and availability.

In August 2007 the Government announced the shortlist of bidders for the Intercity Express
Programme (IEP). At the same time it was announced that the Invitation to Tender would be
issued to the shortlisted bidders in autumn 2007. Proposals would then be received from
bidders in summer 2008, with the award of the contract in winter 2008-09. 71 However,
following reports of ‘disarray’ in the tendering process, 72 the following changes were

         Hitachi Europe had been succeeded as an applicant for the Intercity Express
         Programme (IEP) by Agility Trains Ltd (a consortium comprising of Hitachi (Japan) Ltd,
         Barclays Private Equity and John Laing Projects and Developments). Bidders are:

              •   Express Rail Alliance (a consortium comprising Bombardier Transportation,
                  Siemens, Angel Trains and Babcock & Brown)

              •   Agility Trains Ltd (a consortium comprising of Hitachi (Japan) Ltd, Barclays
                  Private Equity and John Laing Projects and Developments)

         The tender return date was 30 June 2008. 73

On 12 February 2009 the Secretary of State for Transport announced that Agility Trains had
been selected as the preferred bidder for the £7.5 billion contract to build and maintain a fleet

     HL Deb 14 December 2009, cc215-216WS
     ibid., para 11
     DfT press notice, “Department for Transport announces shortlist for Intercity Express Programme”, 16 August
     “Rail contract tender in disarray as Alstom pulls out”, Financial Times, 14 April 2008
     DfT, Change to IEP short listed bidders, 26 June 2008

of new Super Express trains for the Great Western and East Coast main lines. The first of the
new trains would enter service on the East Coast main line in 2013. 74

Although the Government described Agility Trains as a “British-led consortium”, the main
partner is Hitachi and most of the press comment on the announcement described the
consortium as ‘Japanese-led’. 75 In connection with this, the unions raised questions about
whether the trains would be built in the UK or just assembled here. 76 When these concerns
were raised in the Commons the then Secretary of State, Geoff Hoon, said:

         I emphasise that the jobs are real jobs in the UK. I was interested in the hon. Lady’s
         [Theresa Villiers] failure to mention a word that I thought would feature in any
         spokesperson’s observations about a major commercial decision—“competition”.
         Nowhere did she mention the fact that such important commercial decisions are
         subject to competition, or that that is exactly how the issue was resolved. Bombardier
         is a great train maker. It has an order book of some 2,000 carriages, which, as I have
         indicated, will be added to by the announcement that I have just made, and it is
         bidding—with some prospects of success, I anticipate—for further orders in due
         course. That is important to the United Kingdom’s economy, as is the decision that I
         have announced today.

         We anticipate that something in the order of 2,500 new jobs will be created, and that
         would have been the case whichever consortium had been successful. The contract is
         for both the construction and the maintenance of carriages. That means that a
         significant number of jobs will be created in the maintenance sector across the United
         Kingdom. It also means that jobs in the supply chain—the estimate is up to 10,000
         jobs—will be protected and safeguarded, as they support the manufacture. Three
         quarters of the value of the contract will be spent in the United Kingdom. That figure
         means that the great majority of the benefit will be provided for United Kingdom jobs
         and the United Kingdom economy.

As indicated above, the announcement on rail electrification in July 2009 has had a
significant impact on this programme. In the electrification strategy document it states:

         The replacement of a whole fleet of trains operating over a route creates an
         opportunity to reconsider the power source for those trains. Rolling stock fleets tend to
         last 30 to 40 years, so the replacement of the Intercity 125 High Speed Train (HST)
         fleet over the next decade creates a ‘once in a generation’ opportunity to electrify the
         route at the same time as replacing its rolling stock. The Government has decided to
         seize the opportunity to bring together the planning for the replacement of the HST
         fleet with a programme of electrification, rather than embarking on a sub-optimal
         replacement of the HST with another diesel-only fleet.

         The proposed fleet for an electrified Great Western Main Line to Swansea will include
         a proportion of ‘bi-mode’ trains, so that destinations including Worcester, Gloucester,
         Cheltenham, Carmarthen and the South West beyond Bristol continue to enjoy through
         trains while also gaining the benefits of electrification. These bi-mode trains have a
         diesel generator vehicle at one end and an electric transformer vehicle at the other
         end. This allows bi-mode trains to operate ‘off the wires’ to maintain through services
         and provide diversionary services. They may also assist during the latter part of the

     DfT press notice, “Passengers and economy to benefit from biggest investment in trains for a generation”, 12
     February 2009
     see, e.g.: “Britain's £7.5bn train order lost to Japan’s Hitachi”, The Times, 13 February
     RMT press notice, “RMT seeks answers on rolling-stock contract”, 12 February 2009
     HC Deb 12 February 2009, c1535

          construction period by allowing some new trains to be used as they are introduced but
          before the electrification programme reaches Swansea.


          In addition to the journey time savings, it is expected that the introduction of Super
          Express trains will provide at least 15% extra capacity on intercity services during the
          morning peak hour, and much more extra capacity across the day and during the
          evening peak. 78

In response to a written question on 26 October 2009 the Minister said:

          As part of the Intercity Express Programme, the Department is procuring new electric
          and bi-mode (electric and diesel) Super Express Trains to operate services on the East
          Coast Main Line and the Great Western Main Line. Bi-mode trains utilise the electric
          wires where available and continue beyond the wires using the diesel engine. An
          announcement on the placing of orders for Super Express Trains will be made in due
          course. 79

In February 2010 the Government announced that it would not proceed with negotiations on
the contract for the IEP programme before the 2010 General Election because “the
negotiations are for a contract of nearly 30 years, a multi-billion pound spend over the course
of many Parliaments” and, further:

          To ensure that a decision is taken at the beginning of the next Parliament on the basis
          of the fullest evaluation, the Secretary of State has today asked Sir Andrew Foster,
          former controller of the Audit Commission, to provide an independent assessment of
          the value for money of the programme and the credibility and the value for money of
          any alternatives which meet the programme's objectives. 80

5.3       Thameslink rolling stock project
Details on the Thameslink infrastructure programme can be found in HC Library Note

The Government committed to taking Thameslink forward in the July 2007 rail White Paper,
with a projected total cost of £5.5 billion, and a planned completion date of 2015. 81 The
January 2008 rolling stock plan stated:

          The Thameslink Programme delivers additional capacity onto this key cross London
          route. The programme is staged, with additional capacity (Key Output 1 - KO1)
          delivered in December 2011 and a further tranche of capacity (Key Output 2 – KO2)
          delivered in December 2015.

          It is expected that the new vehicles for the Thameslink Programme Key Output 2
          (KO2) in 2015 will be the next generation design for Electric Multiple Units (EMUs) as
          described in the RTS. The completion of the Thameslink Programme KO2 in 2015
          requires the introduction of up to 1300 new vehicles. In order to introduce such a large
          number of new vehicles, it is anticipated that they will be phased into service over a
          period of time in advance of 2015.

     op cit., Britain’s Transport Infrastructure: Rail Electrification, paras 40-42
     HC Deb 26 October 2009, c13W
     HC Deb 26 February 2010, c92WS
     op cit., Delivering a sustainable railway, p50

         The procurement options for the rolling stock for this project are currently being
         evaluated but it is likely that this will be led in the initial stages by the DfT.

         In addition, the programme requires additional vehicles for KO1 in 2011. It is expected
         that these vehicles will be either cascaded existing EMU vehicles or new vehicles
         based on existing designs with some, but maybe not all, of the features of the next
         generation vehicles. However, it is possible that the next generation vehicles proposed
         for KO2 in 2015 could be delivered earlier, possibly by 2010 – 2011, if manufacturers
         are capable of delivering the required outputs.

         Once next generation vehicles are introduced for KO2, the existing fleet of EMUs
         operating the Thameslink routes could be used for cascade on to other routes to
         deliver additional HLOS capacity. 82

In April 2008 the Government placed a notice in the Official Journal of the EU seeking
expressions of interest in the programme, this was accompanied by a summary document
giving details of the programme and matters of interest to bidding companies. In July 2008
the Government released the details of the four shortlisted applicants: ALSTOM Transport;
Bombardier Transportation UK Limited; Hitachi Europe Limited; and Siemens Transportation
Systems. In November 2008 the Government published its train technical specification and
Invitation to Tender (ITT) for the programme. The then Railways Minister, Lord Adonis, said:

         This tender for some 1,200 new Thameslink carriages, including around 400 additional
         carriages on top of those being replaced, forms a vital part of our £5.5 billion plan to
         significantly increase capacity through central London on the First Capital Connect
         service between Brighton, Bedford and other destinations which will become part of the
         network in 2015. When the trains start to arrive in 2012, passengers will see many
         peak time trains lengthened by 50%, from 8 to 12 carriages. By the end of 2015 there
         will be trains running every 2 to 3 minutes into and out of central London.

         The modern design of the new carriage is more spacious than existing ones. They are
         also more energy efficient and environmentally friendly and their lightweight design will
         reduce wear and tear on the lines, reducing maintenance costs. 83

The ITT stated that the closing date for submissions would be 30 April 2009, with the
contract awarded in March 2010, however the Department for Transport later extended the
closing date for bids to 25 June. 84 In April one of the shortlisted bidders – Hitachi Europe –
pulled out of bidding for the programme. 85

As indicated above, in July 2009 the Government published its rail electrification strategy.
This confirmed the procurement plans for the Thameslink rolling stock programme and
indicated what would happen to the ‘old’ Thameslink stock:

         It will then be possible to transfer the current Thameslink four-carriage electric trains
         onto the Great Western Main Line, replacing the current three-carriage diesel trains.
         These 100 mph vehicles will be completely modernised, including the installation of air-
         conditioning, and will offer quieter journeys and additional capacity. It is planned that

     op cit., Rolling stock plan, paras 12-16
     DfT press notice, “Extra 14,500 seats due for Thameslink passengers”, 27 November 2008; both documents
     are available on the Thameslink ITT website
     “Deadline for train orders put back”, Financial Times, 24 March 2009
     “Hitachi pulls out of train bidding”, Financial Times, 23 April 2009

          suburban services between Oxford, Reading and London will be operated with such
          vehicles from the end of 2016. 86

In December 2009 Lord Adonis made a statement about the future of the rolling stock
programme and updated the House on recent rolling stock procurements. On Thameslink he

          The Government remain committed to providing an additional 1,300 carriages by mid-
          2014. Until commercial negotiations on the Thameslink programme are completed, I
          am not in a position to update the rolling stock plan, which is critically dependent on the
          determination of the Thameslink rolling stock contract. 87

     op cit., Britain’s Transport Infrastructure: Rail Electrification, para 45
     HL Deb 14 December 2009, cc215-216WS


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