Ministers are considering taking the struggling East Coast rail franchise back under public control in the next few months after the existing franchise holder ‘got its sums wrong’.
Transport secretary Chris Grayling told MPs that Stagecoach, which is in partnership with Virgin, had lost around £200m running the franchise, which ‘will only be able to continue in its current form for a matter of a very small number of months’.
Stagecoach owns 90% of the franchise, while Virgin has a 10% stake.
East Coast services run under the Virgin brand
He said he would need ‘in the very near future’ to end the contract and put in place a successor arrangement.
Mr Grayling said one option ‘currently on the table’ would be for the East Coast franchise to be directly operated by the Department for Transport (DfT) through an Operator of Last Resort.
This option will be selected if it is assessed that it offers a better deal for passengers and taxpayers than the alternative – for Stagecoach to continue to operate services on the East Coast ‘under a very strictly designed and short-term arrangement’, on a not-for-profit basis.
He added: ‘The company cannot be allowed to continue running this franchise and making a profit given what has happened. They got their sums wrong and they will pay the price for that – not the taxpayer.’
Mr Grayling said that either way, the franchise is expected to deliver substantial revenue to the taxpayer and would continue to make premium payments to the Government once the East Coast Partnership is in place from 2020.
He added that DfT officials had found ‘no adequate legal grounds’ to bar Stagecoach from bidding on current and future franchise competitions on this basis and confirmed that the Government had agreed a direct award with Virgin Trains West Coast, to run the West Coast franchise until the West Coast Partnership, which will include HS2 services, is set up.
Mr Grayling stressed that the West Coast franchise ‘has a completely different corporate structure, where Virgin Trains is the majority shareholder’.
Andy McDonald MP, Labour’s shadow transport secretary, repeated Labour’s pledge to take the entire railway network back into public ownership.
‘That Chris Grayling awarded a profitable contract to Virgin and Stagecoach on the West Coast while simultaneously confirming the same companies have collapsed on the East Coast shows Government policy is in chaos,’ he said.