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East coast mainline to be temporarily renationalised

The Guardian logo The Guardian 16/05/2018 Gwyn Topham Transport correspondent
A Virgin East Coast train at London’s King’s Cross station. © PA A Virgin East Coast train at London’s King’s Cross station.

The East coast rail line will be temporarily renationalised, the government has decided, after operators Virgin and Stagecoach could no longer meet the promised payments in the £3.3bn contract.

The London to Edinburgh service will be taken back into public control on 24 June, a little over three years since Virgin Trains East Coast started running.It will be rebranded as the London and North Eastern Railway. 

The transport secretary, Chris Grayling, told the House of Commons that after a “finely balanced” assessment by civil servants, he had decided to appoint the “operator of last resort” – a group led by the firm Arup and under government control – to run the service, rather than allow Stagecoach and Virgin to continue under fresh terms.

Grayling said: “The route continues to generate substantial returns for the government. It is not a failing railway ... However, Virgin and Stagecoach got their bids wrong.”

He insisted taxpayers had not lost out, adding: “Only VTEC and its parent companies have made losses at this time ... We cannot expect companies to take on unlimited liabilities otherwise they would not bid for franchises.”

Despite the firms now avoiding up to £2bn in premium payments after the failure of the franchise, Grayling said “it would not be reasonable to place conditions” on Stagecoach or Virgin bidding for further rail services. He said: “They have paid a high financial and reputational price.”

But the shadow transport secretary, Andy McDonald, said it was “absolutely ludicrous” to not place conditions on Virgin-Stagecoach’s bidding passport.

He accused the government of having “cynically reprivatised” the line on the eve of the 2015 election, adding: “We’ve had bailout after bailout ... Rail companies win, passengers and taxpayers lose. Franchising remains at the heart of the alleged partnerships. No amount of tinkering can solve the failings of a broken privatised system where the public takes the risk and the companies take the profit – aided and abetted by the transport secretary.”

Grayling announced in November that the East Coast franchise would be terminated three years early in 2020, allowing the operators to avoid up to £2bn in payments until 2023. Lower passenger numbers and revenue than forecast have seen Stagecoach losing around £200m on the franchise to date.

Lord Adonis, who resigned as chairman of the National Infrastructure Commission in protest at what he called the bailout of the train firms at taxpayers’ expense, said Wednesday’s decision was “vindication” of his criticisms, and that Grayling had now done the right thing.

The collapse of the franchise marks the third time in a decade that a private train operator has failed to see out its contract on the east coast mainline, which was renationalised between 2009 and 2015.


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