LNER lives again
Secretary of State for Transport Chris Grayling declares Virgin Trains East Coast franchise will end on June 24.
AN earlier-than-expected need to terminate the Virgin Trains East Coast franchise prompted Secretary of State for Transport Chris Grayling to centralise control of the franchise while stopping short of nationalising East Coast - which would have created a poisonous political situation.
Re-creating Directly Operated Railway (DOR) would have mirrored Labour policy from 2009. Grayling has done the next best thing by creating an external operator which mirrors organisations of the early days of privatisation.
Announcing his plans in a House of Commons Statement on May 16, Grayling said: “I will terminate Virgin Trains East Coast’s contract on June 24.
“I plan to use a period of Operator of Last Resort [OLR] control to shape the new partnership. So, on that same day we will start with the launch of the new, long-term brand for the East Coast Main Line through the re-creation of one of Britain’s iconic rail brands - the London North Eastern Railway (LNER).”
SNC-Lavalin, Arup and Ernst & Young have been appointed as advisors, and will work with VTEC and DfT during the transition before managing the franchise.
Grayling said the decision was reached after the DfT considered two options.
The first option was permitting incumbent Stagecoach to continue operating the railway on a not-forprofit basis until 2020, and earn a performance-related payment at the end of the contract.
The second option was to appoint an Operator of Last Resort, which would bring the route back into temporary control by DfT.
Grayling said: “The analysis suggested the case was very finely balanced, with some elements favouring a contract with the existing operator and others favouring the Operator of Last Resort.
“When judging against my key principles, neither option was obviously superior. There is, though, another factor that I have taken into account. I want to make the smoothest possible transition to the creation of the new East Coast Partnership. So, given the finely balanced judgement, I have taken into account broader considerations and decided to use the current difficulties to drive our long-term plans for the East Coast Partnership.”
Shadow Transport Secretary Andy McDonald said: “Privatised rail is broken beyond repair, yet the Tories are still handing these services back to the private sector because they are wedded to a broken free market ideology.” He again said there had been a £2 billion taxpayer bailout.
Shadow Chancellor John McDonnell tweeted: “Good to see Grayling implementing the first stage of Labour’s Manifesto promise to renationalise the railways.” Stagecoach Group Chief Executive Martin Griffiths said: “We are surprised and disappointed that the Department for Transport has chosen not to proceed with our proposals.
“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. We will work constructively with the DfT and the OLR in the weeks ahead to ensure a professional transfer to the new arrangements, supporting our employees and maintaining the
same clear focus on our customers as we have over the past three years.
“Today’s decision should not detract from the hard work and dedication of our people at Virgin Trains East Coast, who have been central to the transformation we have been delivering for our customers over the past three years.”
VTEC becomes the third franchise holder to have its deal on East Coast finished early. Great North Eastern Railway was replaced in 2007 by National Express East Coast; and thenTransport Secretary Lord Adonis placed Directly Operated Railways in charge of the franchise in 2009 ( RAIL 631), with East Coast operating the deal until March 1 2015 when VTEC took over ( RAIL 770).
While DOR paid back £1bn between 2009 and 2015, Stagecoach and Virgin promised to pay £3.3bn over the life of the original deal to 2023, with £824.9 million due in the first three years up to March 31. Under the original plan to introduce the East Coast Partnership in 2020, VTEC would have been liable for £1.44bn.
In contrast, accounts show that in the five years East Coast was part of the DOR group, a total of £1.05bn was paid to Government. In addition, £18.6m dividends were paid to DOR. Current VTEC passenger satisfaction is 92%.
Grayling said the introduction of LNER would start the transition towards creating the new partnership that was announced last November, when Grayling revealed plans to bundle track and train under one brand with one leader ( RAIL 841).
A new board with an independent chairman will be created to oversee operations. Both LNER and NR will have representatives on the board. An interim chairman will be appointed imminently, with a long-term appointment planned. The LNER brand was registered on February 14, nine days after Grayling declared the franchise would not last until 2020 ( RAIL 846).
Grayling said on May 16 that LNER will be a partnership between public and private sectors. He said infrastructure ownership remains in the public sector (Network Rail), “but the railway is at its strongest when it is a genuine partnership between public and private”.
He said the final structure remains to be shaped, although the objective remains to have one single team operating the railway.