Spiralling Train Leasing Costs Threaten UK Rail Finances as Operators Face Mounting Losses

Britain’s newest intercity express trains have created a curious paradox within the railway industry. Whilst the operators who deploy these vehicles struggle under mounting losses, the private leasing companies that own them continue to accumulate substantial profits. This divergence reveals structural problems within the rail sector that demand urgent scrutiny.

The £6 billion intercity express programme, assembled by Hitachi Rail in County Durham, represents Britain’s most expensive rolling stock procurement to date. Two train operators, Great Western Railway and London North Eastern Railway, now utilise this fleet. Yet the financial outcomes for these operators tell a starkly different story from that of Agility Trains, the leasing and maintenance company behind the contracts.

Recent filings from Agility Trains, which is 25 per cent owned by Hitachi, reveal profits of £380 million across the past two years. This performance stands in sharp contrast to the operational losses incurred by GWR and LNER. Such divergence raises substantive questions about contract structures and value for money in railway financing.

Analysis of Office of Rail and Road data demonstrates that annual train leasing and maintenance costs across the entire network now stand at £4.1 billion, representing a doubling of expenditure from a decade ago. This escalation indicates that substantial sums are flowing from the soon to be state-owned railway towards rolling stock leasing companies, the one sector not facing renationalisation.

GWR’s situation exemplifies these difficulties. The FirstGroup-operated company paid out £627 million in train leasing and maintenance costs last year, equivalent to 51 per cent of its £1.21 billion income. This burden generated operational losses of £400 million, requiring taxpayer subsidies of £428 million to sustain operations. Before the arrival of Hitachi trains in 2018, GWR’s annual leasing costs stood at just £101 million, representing 7.5 per cent of income then valued at £1.33 billion. During that period, the operator achieved operating profits of £240 million and returned £176 million to the Treasury.

LNER presents a comparable case. The operator, returned to state ownership in 2018 after Virgin Trains East Coast failed to meet franchise payment obligations, began deploying Hitachi Azuma trains in 2019. Last year, LNER’s leasing and maintenance costs reached £423 million annually, consuming 45 per cent of revenues at £948 million. The operator currently sustains annual losses of £88 million despite receiving £93 million in taxpayer support. Under previous rolling stock arrangements, leasing costs stood at £125 million yearly, representing 11 per cent of the then £1.12 billion annual income. In its final year of Virgin operation, the business generated a £326 million surplus and transferred £430 million to the Treasury.

Agility Trains has defended the arrangement through a spokesman who stated that the long-term agreement represents value for money, structured to prioritise train reliability and availability. The company operates on a “no train, no fee” basis, with investor returns contingent on performance. Such structures, the spokesman argued, deliver flexible, affordable and high-quality service to customers.

The Department for Transport has acknowledged these challenges within the context of creating the new state-owned Great British Railways. Officials indicated that fundamental railway reform seeks to reduce public subsidy and potentially save taxpayers up to £150 million annually in fees paid to private operators. The department committed to developing a long-term rolling stock strategy, the first in more than three decades, to be published during the summer ahead.

The current trajectory proves unsustainable. Leasing companies accumulating hundreds of millions in profits whilst train operators require escalating subsidies suggests structural failure in contractual arrangements. As the railway sector transitions towards state ownership, resolving these cost imbalances will prove essential to restoring financial viability and protecting taxpayer interests.