Transport secretary Chris Grayling has announced that the failed Virgin Trains East Coast (VTEC) rail franchise will once again come under government control, albeit temporarily.
The franchise is currently run by Stagecoach, which owns 90% of the franchise, while Virgin has a 10% stake.
However, Mr Grayling told MPs that he will terminate VTEC’s contract on 24 June, with an Operator of Last Resort taking over the East Coast Mainline ‘through the recreation of one of Britain’s iconic rail brands, the London North Eastern Railway'.
The transport secretary repeated his assertion that: ‘Stagecoach and Virgin Trains got their bid wrong and they are now paying a price. They will have lost nearly £200m meeting their contracted commitments.’
He added: ‘This means taxpayers have not lost out because revenues are lower than predicted: only Virgin Trains East Coast and its parent companies have made losses at this time.'
However, this ignores the fact that VTEC had promised to pay the Government billions of pounds in premiums up to the original end of the franchise in 2023.
Mr Grayling painted the termination of the failed contract as part of his long-term plans to set up an East Coast Partnership from 2020, merging train and track operations. He told MPs: ‘I have decided to begin the transition process towards creating the new partnership now.’
Lilian Greenwood, chair of the Commons Transport Committee, said: ‘Three times in less than a decade, the Government has been forced to intervene in the East Coast rail franchise. It is a very sorry tale.
‘Let the secretary of state be in no doubt – my committee will be looking closely that what has happened, the choices he made in the run up to this decision and his plans for a new partnership. It is important that the secretary of state is held to account not just for his policies but his implementation of them.’
Paul Plummer, chief executive of the Rail Delivery Group, which represents the rail industry, said: 'The private sector in rail, including Stagecoach Virgin on the East Coast route, has brought significant benefits but we have already been making the case to government for reform.
'There is an opportunity to reform the franchising system for the long-term so it can deliver more for customers, communities, taxpayers and the economy. We will work with governments to make a success of the East Coast partnership while also setting out a bold vision for the future of franchising to benefit Britain.'
Cllr Judith Blake, leader of Leeds City Council, said: 'We saw between 2009 and 2015 how a publicly operated line can deliver real improvements to services and customer satisfaction. However the end of yet another private sector franchise will bring no joy to passengers or businesses in Leeds.
'It’s a significant setback to improvements promised at the start of the Virgin/Stagecoach franchise and we need urgent clarification that those improvements will still be delivered under the new arrangement.'