Labour blunder will cost taxpayers £250m extra to nationalise rail firm

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08-04-2025

Labour's nationalisation of a major train company will cost taxpayers an extra £250 million after a blunder by civil servants, The Telegraph can reveal.
South Western Railway (SWR), which serves London and a large swathe of southern England, will be operated by the Government from May 25.
However, a negotiating error by the Department for Transport (DfT) means taxpayers must spend an extra £50 million a year to lease SWR trains after that date.
Passengers could be told to pay higher ticket prices to offset some of the increased cost, even though public subsidy for the railways stood at £12.5 billion last year.
At the centre of the blunder is the fact that, as is the case with almost all government-franchised operators, SWR does not own its trains. All its rolling stock is leased from companies known as Roscos.
Operators preparing to take over a rail franchise typically start negotiating with Roscos over prices for trains about 18 months in advance of their start date, said industry sources.
Even though DfT itself set SWR's franchise end date as May 25 and published this on its government website, civil servants did not start negotiating with SWR's Roscos until Heidi Alexander, the Transport Secretary, announced in December that the operation would be nationalised.
This decision to leave talks to the last-minute meant that DfT gave itself just a third of the normal time needed to put together a deal.
The result of DfT's short-notice negotiation, together with civil servants' insistence that the lease could only last for five years, was an extra £50 million a year on the price of the trains, totalling £250 million.
Angel Trains, Porterbrook and Rock Rail – the Roscos supplying SWR – each raised their prices by between 10 and 20 per cent as a result of the increased risk from an unusually short contract, insiders said.
'There's sod all, basically, that the Government can do about that because it's now far too late to do anything different,' one added.
The one-sided offer came about because DfT had forgotten that it could not simply roll over SWR's existing contracts, an insider claimed – although a Government source insisted that civil servants could not start negotiating until the rail nationalisation bill received Royal Assent in December.
Previously, DfT has taken over failing private rail operators such as Northern and LNER. All of those takeovers occurred in the middle of the franchise, meaning existing deals stayed in place.
Britain is already tightening its belt because of Donald Trump's trade tariffs, which threaten the spending plans of Rachel Reeves, the Chancellor, and could potentially trigger further tax rises.
Amid the global economic uncertainty, the Tories warned that the taxpayer could not afford Labour's flagship rail nationalisation plans, with another nine train companies set to follow SWR into state ownership over the next three years.
Jerome Mayhew, the Conservative shadow transport minister, said: 'Labour's pandering to the rail unions' demand for full nationalisation is already costing the taxpayer dear.
'The Government was warned that their plans were wrong-headed but they refused to listen to anyone but their union funders.'
Labour promised in its general election manifesto that it could nationalise train companies 'without costing taxpayers a penny in compensation'.
In March the Office of Rail and Road said it was reopening a 2020 investigation into choice and competition in the rolling stock market, over fears that Roscos were charging too much and failing to compete properly against each other.
Rock Rail, which owns the controversial £1 billion Arterio train fleet, whose entry into SWR service has been delayed partly because of trade union objections to the size of its windscreen wiper, did not respond to a request for comment.
Angel Trains, owner of the 750-carriage Siemens Desiro fleet operated by SWR, declined to comment and said its negotiations with DfT were commercially confidential.
Porterbrook, which owns a minority of SWR's trains, declined to comment for the same reason.
A government source said: 'This Government is taking the railways back into public ownership at the lowest reasonable cost to the taxpayer, so we can get on with making the long-overdue improvements needed to make day-to-day journeys easier.
'Negotiations like these take two and a half years on average, and so should have been started by the previous Conservative government in 2023, whether the railways were being taken into public ownership or not.
'This is the long tail of Tory incompetence, which continues to fail passengers, even when they are not in power.
They added: 'The only alternative available to this Government would have been to buy the current operator out of the contract, a few months before it lapsed anyway – but this would have incurred the same rolling stock renewal costs next month, in addition to millions of pounds worth of compensation paid to the outgoing operator.'
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