Transport Secretary Chris Grayling and Branson with an East Coast train
Transport Secretary Chris Grayling announced that he was putting the East Coast Main Line, currently run by Virgin Trains East Coast (VTEC), back under public control from next month.
He acted after the operator, owned by Stagecoach and Sir Richard Branson’s Virgin, suffered £200million losses over three years.
They had overestimated how many passengers they could attract to the route between London, York, Newcastle and Scotland.
Despite the two firms’ failure Mr Grayling said both Stagecoach and Virgin would still be allowed to continue running trains in the UK.
He told MPs in the Commons: “Only VTEC and its parent companies have made losses at this time.” Stagecoach chief executive Martin Griffiths said the firm was “surprised and disappointed” by the move.
But Shadow Transport Secretary Andy McDonald said Mr Grayling had “gifted” Stagecoach and Virgin a “bailout” worth £2billion.
The firms were less than halfway through a contract under which they should have paid the Treasury £3.3billion over eight years.
Mr McDonald also said the refusal to put conditions on their future in the industry was “absolutely ludicrous”.
The shake-up came three weeks after MPs on the Public Accounts Committee said passengers across Britain were paying the price for a “broken” franchising system.
It is the third time in just over 10 years that the East Coast franchise has been taken back from the private sector.
GNER lost it in 2007 after its parent firm suffered financial difficulties.
It was replaced by National Express, which then withdrew after just two years.
Department for Transport officials took over management of the line and ran it highly successfully for six years until VTEC took control in 2015.
The contract, which was due to run until 2023, will now be returned to the Department for Transport which will act as an Operator of Last Resort advised by private sector firms.
Mr Grayling said he wants to use this to create a public-private partnership from 2020 and that he was recreating the London North Eastern Railway brand.
Existing staff will transfer from VTEC to the LNER. Mick Cash of the RMT rail union said: “After three shambolic private sector failures the message should now sink in that these cowboys cannot be trusted.”
Aslef union leader Mick Whelan blamed “Tory dogma”.
Anthony Smith of the independent watchdog Transport Focus said: “Whichever organisation runs East Coast services passengers will be looking for the quality of services to be built on.”
Troubled services hit the buffers. April 1996: East Coast Main Line privatised, after being in public ownership since 1948.
Sea Containers begins a seven-year contract to operate the franchise, operating under the brand name Great North Eastern Railway (GNER). January 2002: GNER contract extended until 2005.
March 2005: GNER awarded contract to continue operating the franchise, due to run for another seven years.
December 2006: Sea Containers stripped of East Coast franchise due to financial difficulties.
The Government puts franchise up for re-tender, with GNER allowed to run trains until a new owner is found. August 2007: Franchise is awarded to National Express, (NXEC) which begins operating in December 2007.
July 2009: NXEC stripped of the franchise due to financial difficulties.
Government says it will nationalise the line and run franchise through a publicly-owned company.
November 2009: Government-owned operator East Coast takes over the franchise.
March 2015: East Coast line is privatised again.
Stagecoach/ Virgin begins an eight-year contract, under brand name Virgin Trains East Coast (VTEC).
November 2017: Government says VTEC contract will end in 2020 due to money difficulties.
May 2018: Nationalised again.
Government-owned operator London & North Eastern to take over from June 24.
Analysis by Adrian Quine
As the East Coast rail franchise fiasco comes to a head, it’s no wonder that the finger-pointing has begun.
It’s all so predictable.
After all, it’s hard to find a week when Britain’s railways aren’t making the headlines, for all the wrong reasons. Labour loves these negative headlines.
For Jeremy Corbyn it’s another reason to flog his favourite hobby horse – nationalisation.
However, his rose-tinted view is far from reality.
While we made just 600 million train journeys a year at the end of nationalisation, we’re now making more than 1.6 billion.
That journeys started to rise with privatisation is no accident.
The passengers that ride on them are happier too.
Instead of taxpayers forking out fixes for our Victorian infrastructure, our passenger networks now bring in enough cash to cover 99 per cent of daily operating costs.
Yet while privatisation has brought investment, including £925million in just the past year, it also brought in the franchise system.
After three failed franchises on the East Coast we’re now set for another temporary nationalisation.
Taxpayers will bear the brunt of the cost, then the Government will franchise again, with all the same problems.
Transport Secretary Chris Grayling will dictate timetables, stopping patterns and whether a train has a catering trolley.
Firms will overbid to run a monopoly and customers will overpay.
Frankly, what we need is open access competition with firms competing on the same routes.
This means lower prices for travellers, more services and more satisfaction.
We should treat intercity passengers on lines like the East Coast Mainline like those that take planes – buying tickets in advance with a range of needs and prices.
Where train companies like Grand Central Rail and Hull Trains compete head-to-head, fares are about 30 per cent lower.
Passenger numbers have soared and satisfaction tops the league tables.
The status quo is unsustainable and undesirable.
Yet a return to the past isn’t going to fly.
If we want our railways to be the envy of the world once more, we need real competition.
- Adrian Quine is an analyst and rail expert at the Adam Smith Institute