A Rolling Stock Operating Company (ROSCO) owns and maintains railway engines and carriages which are leased to Train Operating Companies (TOC) who actually operate the trains.
At the time of privatisation, the rolling stock of British Rail was sold either directly to the new operators, as in the case of the freight companies, or to the three ROSCOs (Rolling Stock Operating Companies) which lease or hire stock to passenger and freight train operators. Leasing is relatively commonplace in transport, since it enables operating companies to avoid the complication associated with raising sufficient capital to purchase assets; instead, assets are leased and paid for from ongoing revenue. Since 1994 there has been a growth in smaller spot-hire companies that provide rolling stock on short-term contracts. Many of these have grown thanks to the major selling-off of locomotives by the large freight operators, especially EWS.
Unlike other major players in the privatised railway system of Great Britain, the ROSCOs are not subject to close regulation by the economic regulatory authority. They were expected to compete with one another, and they do, although not in all respects.
Since privatisation in 1995, the ROSCOs have faced criticism from a number of quarters - including passenger train operating companies such as GNER, Arriva and FirstGroup - on the basis that they are acting as an oligopoly to keep lease prices higher than would be the case in a more competitive market. In 1998, Deputy Prime Minister John Prescott asked Rail Regulator John Swift QC to investigate the operation of the market and make recommendations. It was believed by many at the time that Prescott favoured much closer regulation of the ROSCOs, perhaps bringing them into the net of contract-specific regulation, i.e. requiring every rolling stock lease to be individually approved by the Rail Regulator before it could be valid. Swift's report did not find major problems with the operation of what was then an infant market, and instead recommended that the ROSCOs sign up to voluntary, non-binding codes of practice in relation to their future behaviour. Prescott did not like this, but he did not have the legislative time allocation to do much about it. Swift's successor as Rail Regulator, Tom Winsor, agreed with Swift and the ROSCOs were happy to go along with codes of practice, coupled with the Rail Regulator's new powers to deal with abuse of dominance and anti-competitive behaviour under the Competition Act 1998. In establishing these codes, the Rail Regulator made it clear that he expected the ROSCOs to adhere to their spirit as well as their letter. The codes of practice were duly put in place and for the next five years the Rail Regulator received no complaints about ROSCO behaviour.