East Coast rail line: Demands for re-nationalisation grow as Virgin Trains franchise fails

Government may allow Virgin Trains and Stagecoach to keep running services on the UK’s flagship route

The transport secretary, Chris Grayling, is expected this week to cancel the troubled Virgin Trains East Coast (VTEC) franchise, just three years after it began.

As the government prepares to announce the demise of yet another franchise on the East Coast mainline, fresh calls have been made for renationalising the railways.

Mick Cash, general secretary of the RMT union, said: “Privatisation has been a total failure. The scandal on the East Coast continues to rumble on.

“The union will continue to fight to protect jobs, services and safety, and for the long-term solution of public ownership”.

In February, Mr Grayling told parliament: “It is now clear that this franchise will only be able to continue in its current form for a matter of a very small number of months and no more.”

The franchise was originally due to run until 2023, but the transport secretary had already said it would be replaced in 2020 by a new public/private model known as the East Coast Partnership.

The route from London King’s Cross to Leeds, Newcastle and Edinburgh is Britain’s flagship line, but VTEC – 90 per cent owned by Stagecoach – will be the third franchisee to fail.

In 2007, GNER collapsed. That franchise was taken over by National Express, which itself handed back the keys in 2009.

Following those failures, the operation was taken back into public hands. Passenger satisfaction and profits both improved.

In March 2015, the Stagecoach/Virgin consortium took over the franchise. But forecasts on increased revenue were far too optimistic, and the shortfall has cost Stagecoach an estimated £200m – representing about a fifth of the value of the entire group.

The Department for Transport (DfT) has declined to comment on when an announcement will be made and what will replace the failed franchise.

The Independent understands that either VTEC or another private consortium will be allowed to continue to run East Coast trains for the next two years under a management contract, rather than the operation coming back into public hands.

The Labour Party has declined to comment on speculation, but in March the shadow transport secretary, Andy McDonald, said: “Labour will end Chris Grayling’s rail privatisations and run our railway under public ownership for the many, not the few.”

In April, the chair of the Transport Select Committee, Labour’s Meg Hillier, said: “The East Coast franchise has failed for a third time because of wildly inaccurate passenger growth forecasts.

“The franchising model is broken and passengers are paying the price.”

But Mr Grayling has insisted: “There has been much misinformation about this franchise so it is worth stressing again at the outset that – because payments to the government have been subsidised by Stagecoach – the taxpayer has still profited financially from this franchise.

“Passenger satisfaction is high and preparations are well under way to deliver state-of-the-art new trains on the route. The problem is that Stagecoach got its numbers wrong. It overbid and is now paying a price.”

Mark Smith, the rail guru who runs the Seat61.com website, said: “The Virgin East Coast franchise bid was based on (a) the then-current annual levels of growth continuing and (b) further growth in revenue directly resulting from increased train frequency, itself permitted by various infrastructure works resolving various bottlenecks.

“The annual growth in traffic has tailed off (along with a lot of other economic activity in the UK, it seems), and the various infrastructure improvements haven’t happened.

“The usual nonsense is trotted out: Virgin laughing all the way to the bank, etc. In reality, they are making a loss, and their plans have been frustrated by Network Rail and the DfT.”

The franchise agreement required the franchisee “actively to seek, in all reasonable business ways, greatly improved performance … so as to deliver to the passenger the best railway passenger services that can be obtained from the resources that are available to it”.