State to take over East Coast main line
The Government is to renationalise the East Coast main line following the “failures” of the private operators Stagecoach and Virgin Trains, which admitted they could not afford to keep running it but will still be able to bid for new franchises. It will become the London and North Eastern Railway.
THE Government is to renationalise one of Britain’s busiest railway lines for the third time in just over a decade, and the private operators who admitted they could not afford to keep running it will still be able to bid for new franchises.
Chris Grayling, the Transport Secretary, yesterday announced he was pulling the plug on the East Coast rail franchise after a string of failures by Stagecoach and Virgin Trains. But Mr Grayling said they would not be barred from bidding for new contracts because he was “not in favour of punishing people for making a mistake”.
He also announced that East Coast will be rebranded as the London North Eastern Railway as part of a bid to rehabilitate the public image of a line that suffered repeated failures over 10 years.
The decision to temporarily bring the line back into public ownership is politically embarrassing for the Government, which has repeatedly defended the private franchise model for the railways. It comes amid concern from Tory MPS that Jeremy Corbyn’s call to renationalise the railways is getting through to the electorate.
Mr Grayling said the current East Coast contract would be terminated on June 24 this year and the state would temporarily take on responsibility for running services. After 2020, the expectation is for the line to be operated on a new public-private partnership model which will involve “working with Network Rail to bring together the teams operating the track and trains on the LNER network”.
He defended the merits of the franchising model and rejected calls to punish Stagecoach and Virgin Trains. “The railway has been well run, it has been and continues to make more money for the taxpayer and gets higher satisfaction from customers. But there has to be a consequence for failing to fulfil a contract and that is why they have lost this contract.” Andy Mcdonald, the shadow transport secretary, accused the Government of giving Stagecoach and Virgin Trains a £2billion “bail-out”.
He said: “The Government’s incompetence has been disastrous for passengers and led to misery for millions.”
♦ A government funding row broke out yesterday over a new “millennial railcard” for 26 to 30-year-olds, sparking fears that it could be rejected.
For the third time since the railways were privatised in 1997, the East Coast mainline has been taken back into government control. Chris Grayling, the Transport Secretary, told MPS that this would be a temporary measure while a new private operator was found to take over in 2020. But given the history of this particular franchise, what guarantees are there that the same thing will not happen again?
Mr Grayling said the joint venture of Stagecoach and Virgin had got their original £3 billion bid for the franchise wrong by overestimating the growth of passenger numbers on the London to Edinburgh route. Even though the line was generating substantial returns for the Treasury and was reporting high rates of customer satisfaction, the operators have lost nearly £200 million in meeting their contracted commitments.
Mr Grayling was accused of being prepared to bail them out, but it would have created a moral hazard to have done so: other franchise-holders would have seen it as an incentive to walk away when they ran into financial difficulties. He eventually decided to take the company into state control once more, reviving the historic London and North Eastern Railway brand.
The Transport Secretary has made the right choice. In doing so, however, he has reignited the political arguments over the future ownership of the railways. Predictably, Labour has called for the entire network to be renationalised, even though many of the franchises work perfectly well. Moreover, Labour conveniently forgets why the railways were privatised. The drain on the public finances meant they were not getting the investment that the private operators have been able to make. The issue is not whether the franchise model is working perfectly but what the railways would have looked like today had they remained in public control. Passenger numbers – which were falling until privatisation – have grown to the highest level since the Twenties.
This is an opportunity to give fresh impetus to the privatisation model. Mr Grayling has set out proposals for greater integration of the operations and track and these need to be pursued vigorously. In the meantime, Network Rail – which is under state control – needs to do much more to upgrade the track. Labour’s solution is always to look back to a world of public ownership through rose-tinted spectacles. Mr Grayling is right to look ahead.