- Contract terminating on 24 June
- Service to be renamed London and North Eastern Railway (LNER)
- Timetable will remain the same and tickets for future travel still valid
- Stagecoach has lost about £200 million on the franchise
- Third time the government has halted the franchise
- Critics described the move as a ‘bailout’
The government will renationalise the East Coast mainline following a string of failures, it was announced on Wednesday.
Transport Secretary Chris Grayling has confirmed that he will be terminating the contract for one of Britain’s busiest railway lines on 24 June, bringing it back into public ownership.
Virgin Trains East Coast – a joint venture between Stagecoach (90%) and
Virgin (10%) – was awarded the franchise to run trains between London King’s Cross and Edinburgh for eight years in 2014.
The service will be renamed London and North Eastern Railway (LNER).
This latest intervention is the third time in a decade that the government has had to halt the East Coast franchise.
Grayling told the Commons on Wednesday that he had decided to appoint the “operator of last resort” - a group lead by the firm Arup and under government control - to run the service. He said the aim was to create a public-private partnership, with “one simple team operating the railway”.
The Tory minister said passengers will not experience any changes to train services, the timetable will remain the same and that tickets purchased for future travel, including season tickets, will continue to be valid.
Grayling disputed claims by Labour that this was a bailout and said the companies operating the franchise will have lost around £200 million meeting their contracted commitments.
He insisted that taxpayers had not lost out, telling MPs: “Only VTEC [Virgin Trains East Coast] and its parent companies have made losses at this time... We don’t and we can’t expect companies to take on unlimited liabilities, they simply would not bid for them if they had to.”
He said that train operators had paid a “high financial and reputational price” for what has happened.
Andy McDonald, shadow transport minister, said Grayling had “gifted” the operators a “£2 billion bailout” after they failed on the main line, adding: “And he has the audacity to come to that despatch box and say it’s not reasonable to remove or place conditions on their passport. Absolutely ludicrous.”
Stagecoach said it was “surprised and disappointed” that the government had decided not to proceed with its proposals.
Martin Griffiths, Stagecoach chief executive, said in a statement: “We believe our plans offered a positive, value-for-money way forward for passengers, taxpayers and local communities, ensuring the continuation of the exciting transformation already under way on East Coast and a smooth transition to the Government’s new East Coast Partnership. However, we respect the Government’s decision.”
Grayling was berated by both John Bercow, Commons speaker and Labour’s McDonald for only allowing the opposition to see the statement 30 minutes before it was read in Parliament.
McDonald said the service’s most successful period had come under public ownership, until it was “cynically reprivatised”.
He went on: “The Government’s incompetence has been disastrous for passengers and led to misery for millions.
“We’ve been here before, many, many times. Year after year, the Secretary of State and his predecessors have stood at the despatch box and told the House that privatisation is being reformed.
“We’ve had reform, reform and reform. We’ve had bailout after bailout. Rail companies win, passengers and taxpayers lose.”
“Franchising remains at the heart of the alleged partnership. No amount of tinkering can solve the failings of a broken privatised system, where the public takes the risk and the train companies take the profit, aided and abetted by the transport secretary.”
The private operators have complained of losing money on the line and in November Grayling announced that the franchise would be terminated in 2020 - three years early - to enable it to become a public-private railway.
Two months later Grayling told the Commons that the franchise would only be able to continue in its current form for a “very small number of months”.
He said Stagecoach had “got its numbers wrong” and had “overbid”.
Virgin Trains East Coast had agreed to pay the Government £3.3 billion to run the service until 2023.
Griffiths told the Commons Public Accounts Committee that the collapse of the franchise was a “very painful experience”.
He said Stagecoach will lose more than £200 million over the course of the franchise, including forfeiting a £165 million guarantee.
Critics described the move as a “bailout”, with Lord Adonis resigning as chairman of the National Infrastructure Commission after claiming it would cost taxpayers hundreds of millions of pounds in lost payments by the operator.
So what does this mean?
Grayling said the changes should not affect passengers’ planned journeys.
Meanwhile, unions are hopeful that the government’s announcement will lead to the rest of the country’s railways being brought back into public ownership.
Mick Whelan, general secretary of ASLEF, the train drivers’ union, said: “This is the third time in ten years that a private company has messed up on the East Coast main line. When it was run in the public sector, it returned more than £1billion to the Treasury.
“It’s important that staff, and passengers, are properly protected while, once again, the Transport Secretary tries to patch up a failing franchise system that everyone knows doesn’t work. Britain’s railways should be run, successfully, as a public service, not for private profit. Because they cannot do it.”
Privatisation and the railways:
In 1996, train operating company Sea Containers acquired a seven-year contract to operate the East Coast rail franchise under the Great North Eastern Railway brand. Following a number of financial difficulties over the next ten years, Sea Containers was stripped of the franchise.
The franchise was awarded to National Express in August 2007, but it encountered further financial difficulties, leading to the government-owned East Coast taking over the contract in 2009. It was privatised again in 2015, this time being run by Stagecoach and Virgin.
On Wednesday, Labour MP Hilary Benn said of Grayling: “He could have made a considerably shorter statement if he’d just got up and said for the time being I am renationalising the East Coast mainline.”
Grayling replied: “Well it’ll be a publicly-run service and we will be, over the next two to three years, developing the new model for the future which, as I say, will be a – the operator of last resort is a publicly run service, so yes it will be and we will be making the transitions to the new arrangements over that period.”