TfL rolling stock crisis
 

Roland Perry wrote:
In message , at 10:35:41 on Mon, 8 Jan
2018, remarked:

mix of internally generated surplus and govt investment grant pays for new =
train fleets. I can't recall a train fleet being "flogged off" to pay for a=
new one. It was Caroline Pidgeon who remarked that the proposal was "craz=
y" (or some similar term).

And will almost certainly cost TfL more in the long run. Whoever buys the
trains won't be doing it for the good of mankind, they'll want a long term
profit. As ever short termism rules in british government.

What government wants is stability (whichever political party in power
we are talking about).

Thus, raising taxes to fund those trains could result in voters making a
change at the top, which tends to cause all sorts of costly consequences
reversing earlier policy decisions.

A long term lease (which is the opposite of short-term-ism actually)
does at least make things predictable.

Oh please. It'll cost a damn site more long term,

How do you know what the cost of political upheaval after raising taxes
is likely to be?

But they wouldn't raise taxes. They'd just borrow the money more cheaply,
thus ultimately reducing future taxes.


its just kicking the actual costs down the road for the next
government/administration to have to explain to the public.

The thing is, they don't ever have to explain it [again]. It's nailed
into the long term (that's good isn't it) operational costs, just like
the rent for the new HQ building they are leasing rather than buying.

Yes, but higher costs than if the government borrowed the money directly.

The whole point of this sort of obtuse deal is just to keep the borrowing
off the Treasury balance sheet.


I don't know what the ratios are for TfL (maybe PaulC can help) but on
National Rail leasing the rolling stock represents only 11% of the fares
basket.

I don't know either, but would speculate that the figure is a bit higher
for TfL as it runs many more trains per mile of track than National Rail.

TfL rolling stock crisis
 

Roland Perry wrote:
In message
-sept
ember.org, at 10:36:22 on Mon, 8 Jan 2018, Recliner
remarked:
Roland Perry wrote:
In message , at 09:49:27 on Mon, 8 Jan
2018, remarked:

mix of internally generated surplus and govt investment grant pays
for new =
train fleets. I can't recall a train fleet being "flogged off" to
pay for a=
new one. It was Caroline Pidgeon who remarked that the proposal was "craz=
y" (or some similar term).

And will almost certainly cost TfL more in the long run. Whoever buys the
trains won't be doing it for the good of mankind, they'll want a long term
profit. As ever short termism rules in british government.

What government wants is stability (whichever political party in power
we are talking about).

Thus, raising taxes to fund those trains could result in voters making a
change at the top, which tends to cause all sorts of costly consequences
reversing earlier policy decisions.

A long term lease (which is the opposite of short-term-ism actually)
does at least make things predictable.

This is a form of off-balance sheet government borrowing. It would be much
cheaper if the Treasury borrowed the money directly.

Does TfL have the powers to demand the Treasury take out such loans?

Obviously not.


With the best PFI deals, the greater efficiency of a private sector
builder/provider/operator more than makes up for the higher interest
rates they have to pay, but there's no potential for such efficiencies
in a sale/leaseback deal.

And because the depreciating asset has very little value to anyone other
than LU, the lender has to include a risk premium.

Are you sure this leasing deal has no penalty for early termination?

I'm sure there would be, but I'm talking about what happens at the end of
the lease.


It's not like a building sale/leaseback, where the asset has an
intrinsic, and possibly growing, value. At the end of the lease, the LU
trains will be worth little more than scrap value,

The same value as to TfL, had they owned them outright, then.

LU could continue to use the trains if it owned them. But what would the
leading company do with a fleet of usable, but ageing, trains that couldn't
be used by anyone else? The only buyer at more than scrap value would be
LU, but it would have all the pricing power.


so the lease charge has to be high enough to cover their declining
value.

Which is what all leases for diminishing assets do, inherently.

Over the expected life of the asset. But I'm assuming the lease is for a
shorter period.

TfL rolling stock crisis
 

On 08/01/2018 10:36, Recliner wrote:

snip
This is a form of off-balance sheet government borrowing.

I am long past the need to know but thought that accounting standards
had now stopped such sale and leaseback deals escaping the balance
sheet. I can't see TfL arguing successfully it's an operating lease.
And I think IFRS16 removes even that distinction from next year for
plant and machinery so TfL would have to show a “right to use the stock�
asset and a "lease" liability on their balance sheet.

It would be much
cheaper if the Treasury borrowed the money directly.
Cheaper for TfL, yes. Whether it's cheaper for the country depends on
what the bond markets decide about UK national debt.

And people outside London paying increased fares year by year might ask
why Londoners who don't should be bailed out.




--
Robin
reply-to address is (intended to be) valid

TfL rolling stock crisis
 

On 08/01/2018 11:17, Recliner wrote:
snip


The whole point of this sort of obtuse deal is just to keep the borrowing
off the Treasury balance sheet.

Finance leases are on the balance sheet in the Whole of Government Accounts.



--
Robin
reply-to address is (intended to be) valid

TfL rolling stock crisis
 

In message
-septe
mber.org, at 11:17:32 on Mon, 8 Jan 2018, Recliner
remarked:

How do you know what the cost of political upheaval after raising taxes
is likely to be?

But they wouldn't raise taxes. They'd just borrow the money more cheaply,
thus ultimately reducing future taxes.

What makes you think they have the power to borrow the money required?
--
Roland Perry

TfL rolling stock crisis
 

In message
-sept
ember.org, at 11:23:18 on Mon, 8 Jan 2018, Recliner
remarked:

I'm assuming

Well, there you go.
--
Roland Perry

TfL rolling stock crisis
 

On Mon, 8 Jan 2018 12:10:47 +0000, Roland Perry
wrote:

In message
-sept
ember.org, at 11:23:18 on Mon, 8 Jan 2018, Recliner
remarked:

I'm assuming

Well, there you go.

Well, it's a pretty safe assumption, and you don't have any facts,
either.

TfL certainly wouldn't want to commit to a lease longer than the
minimum expected life of the fleet in question. The actual life is
probably much longer. TfL will then be in a position to pay a much
lower price for any extension lease or re-purchase -- which would
cause the bank to charge more for the lease.

TfL rolling stock crisis
 

On Mon, 8 Jan 2018 12:09:56 +0000, Roland Perry
wrote:

In message
-septe
mber.org, at 11:17:32 on Mon, 8 Jan 2018, Recliner
remarked:

How do you know what the cost of political upheaval after raising taxes
is likely to be?

But they wouldn't raise taxes. They'd just borrow the money more cheaply,
thus ultimately reducing future taxes.

What makes you think they have the power to borrow the money required?

Are you joking? Of course the Treasury can borrow more. It does so
all the time.

TfL rolling stock crisis
 

On Mon, 8 Jan 2018 11:24:38 +0000, Robin wrote:

On 08/01/2018 10:36, Recliner wrote:

snip
This is a form of off-balance sheet government borrowing.

I am long past the need to know but thought that accounting standards
had now stopped such sale and leaseback deals escaping the balance
sheet. I can't see TfL arguing successfully it's an operating lease.
And I think IFRS16 removes even that distinction from next year for
plant and machinery so TfL would have to show a “right to use the stock”
asset and a "lease" liability on their balance sheet.

It would be much
cheaper if the Treasury borrowed the money directly.
Cheaper for TfL, yes. Whether it's cheaper for the country depends on
what the bond markets decide about UK national debt.

And people outside London paying increased fares year by year might ask
why Londoners who don't should be bailed out.

Yes, that does the raise the question of why TfL is still freezing
Tube fares when it doesn't have enough budget to renew life-expired
fleets.

TfL rolling stock crisis
 

In message , at 12:37:01 on
Mon, 8 Jan 2018, Recliner remarked:
On Mon, 8 Jan 2018 12:09:56 +0000, Roland Perry
wrote:

In message
-septe
mber.org, at 11:17:32 on Mon, 8 Jan 2018, Recliner
remarked:

How do you know what the cost of political upheaval after raising taxes
is likely to be?

But they wouldn't raise taxes. They'd just borrow the money more cheaply,
thus ultimately reducing future taxes.

What makes you think they have the power to borrow the money required?

Are you joking? Of course the Treasury can borrow more. It does so
all the time.

But can it borrow money to prop up TfL's current account? Remember - the
funds raised by the sale/leaseback are being used keep TfL going on a
day to day basis.
--
Roland Perry