‘£2bn bail out for rail firms’ as East Coast line is renationalised

MINISTERS were accused of handing two rail companies a £2billion ‘bail out’ yesterday after temporarily renationalising the troubled East Coast main line.

For the third time in less than a decade, the UK Government was forced to pull the plug on the franchise after operators – Stagecoach and Virgin – failed to deliver on their promises.

Transport Secretary Chris Grayling was jeered by opposition MPs yesterday as he announced plans to take the service back into public hands from June 24. He also came under fire after confirming that despite the latest failure, Virgin and Stagecoach will be able to bid for the franchise when it next comes up for renewal.

He told MPs the Department for Transport will assume control of the line between London and Edinburgh, saying it would operate under the ‘iconic’ London and North Eastern Railway brand that disappeared 70 years ago.

The Government had previously warned it may have to pull the plug on the franchise, which was running out of money.

But given its opposition to nationalisation, it had been expected to allow them to continue running the line on a ‘not for profit’ basis for two years.

The operators would have been paid at the end of the deal if they hit certain targets.

Scottish Transport Minister Humza Yousaf welcomed the move but said he was ‘disappointed’ not to be informed of it by Westminster as Mr Grayling promised to give him advance warning of his plans for the franchise.

Mr Yousaf said: ‘Given the importance of East Coast services to Scotland, we will press the UK Government for involvement in the new LNER board.

‘We will also require assurance that there will be no reduction in service levels for Scottish passengers.’

Addressing the Commons, Mr Grayling said Stagecoach and Virgin ‘overbid’ for the franchise when they took it on in 2015 – overestimating the growth in passenger numbers and ticket sales. This left them unable to keep up with payments to the Government.

They had promised £3.3billion over the eight-year term of the contract, which was due to end in 2023. Instead they only paid around £1billion – prompting Labour to describe the decision to end the franchise early as a £2billion ‘bail-out’.

Mr Grayling stressed taxpayers had not lost any money. He said taking the line back into public ownership would ensure the ‘smoothest possible transition’ to a new public/private sector partnership whereby Network Rail, which owns the rail infrastructure, and train operators will work more closely together to run franchises when they come up for renewal.

However, his decision to temporarily renationalise the service and implement the Government’s powers as the ‘operator of last resort’ was pounced upon by Labour.

Its transport spokesman Andy McDonald said it provided further evidence of Britain’s ‘broken’ rail franchising system and the need to renationalise the railways.

Virgin and Stagecoach blamed Network Rail for their failure. Virgin owner Sir Richard Branson said the bid was based on the promise of upgrades that would have led to additional, faster services but they were hit by delays.

Mr Grayling also sparked a row yesterday by saying he had received ‘official advice’ that restrictions should not be placed on Virgin and Stagecoach bidding for future rail franchises.

Mr McDonald said it was ‘absolutely ludicrous’ that the two operators are able to bid again.

Virgin Trains East Coast is the third private operator to fail to complete a contract on the route. GNER was stripped of the franchise in 2007, while National Express withdrew in 2009. It was then run by the DfT for six years.

‘No reduction in service levels’