Branson braced for rail competition inquiry

Sir Richard Branson is facing the prospect of a competition investigation into his bid for the East Coast mainline, one of the country's prestige rail routes.

Sir Richard Branson is facing the prospect of a competition investigation into his bid for the East Coast mainline, one of the country's prestige rail routes.

If his Virgin Trains were to be awarded the franchise between London and Edinburgh, it would give Sir Richard control of all three long-distance rail services to Scotland. Virgin Trains, which is 49 per cent owned by Stagecoach, already operates the West Coast mainline from London to Glasgow and Cross Country Trains, which also serves parts of Scotland.

Bids for the East Coast franchise, which has been run since 1996 by GNER, part of James Sherwood's Sea Containers, are due to submitted to the Strategic Rail Authority a week today. Apart from GNER and Virgin Trains, the other bidders are First Group and Danish state railways.

The Office of Fair Trading is expected to rule on whether the Virgin bid should be sent to the Competition Commission before the end of next month and the indications are that it will conclude a referral is advisable given the potential competition concerns which arise. Virgin would operate 100 per cent of trains from London to Scotland and would have a monopoly on some specific routes such as Newcastle to Edinburgh, which is currently served by both GNER and Cross Country. It would also have 60 per cent of the market between York and Edinburgh.

The OFT has referred two previous rail franchise awards - First Group's bid for Scotrail and National Express's takeover of the new Greater Anglia franchise. In both instances, the bids were cleared but in the case of Greater Anglia, the OFT came in for criticism for referring the bid four months after National Express had begun running services.

GNER's East Coast franchise runs out at the end of April next year, so the timetable for assessing the four rival bids and selecting a preferred bidder is already extremely tight. The fact that the SRA is being wound up and staff are leaving for jobs elsewhere is causing further complications.

A lengthy Competition Commission inquiry could delay the decision beyond the next election, which is expected in May.

This may please ministers because the East Coast is a high-profile and politically sensitive route. If the award of the franchise were seen to have been rushed through, an unsuccessful bidder could demand a judicial review of the decision.

The last time the Government invited bids for a 15-year franchise to run the East Coast in 2002, it fudged a final decision, agreeing to give GNER a short-term extension instead.

The route carries 15.5 million passengers a year, generating revenues of £400m. GNER pays a premium of £30m a year to operate the franchise and makes operating profits of £30m-£40m a year from the service. Chris Garnett, the chief executive of GNER, said he was confident of retaining the franchise, pointing out that the Department of Transport's recent rail white paper said that past performance would be taken into account when franchises are re-let.

A Virgin Trains spokesman said that although a successful bid for the East Coast mainline would give it a monopoly over rail services from London to Scotland, trains accounted for less than 10 per cent of traffic between London, Edinburgh and Glasgow.