Train services on the East Coast mainline could be renationalised within weeks after transport secretary Chris Grayling revealed that the current Virgin franchise on the line will run out of money in “a very small number of months”.
In a statement to MPs, Grayling revealed that the franchise, which he had previously announced would be cut short by two years from 2023 in what critics called a bailout of the existing operator, would not make it 2020.
He said that officials in the department were now examining the steps that needed to be taken to protect services on the line. The two main options being considered are the current joint operators, Stagecoach and the Virgin Group, continuing to run the line under a short-term, not-for-profit arrangement, or the DfT’s operator of last resort, Directly Operated Railways, taking over the line.
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DOR was in charge of the line from November 2009 to February 2015, taking over the service because the previous private operator, National Express, had been unable to meet its financial payments to the government.
The move comes after the high-profile collapse of outsourcing firm Carillion, which led the government to take some services, including facilities management across the prisons estate, back in-house.
Grayling said the two options for future rail services will be “subject to the same rigorous assessment to establish whether it will deliver value for money for taxpayers and protect the interests of passengers”.
Each option would provide “substantial revenue” to the government, he said.
Since 2015 the franchise has met all its financial commitments to the taxpayer, he told MPs, with nearly £1bn paid to the public purse. However. Stagecoach, the lead operator of the franchise, has had to pay nearly £200m of this from its own funds as passenger numbers have not kept pace with its protections.
As a result, Grayling said the DfT issued the franchisee with notification that the franchise had breached a key financial covenant.
“The problem is that Stagecoach got its numbers wrong. It overbid and is now paying a price,” he said. “Contrary to widespread speculation, no deal has been done and I have not yet made a decision on the successor operator to run the East Coast railway until the long-term plans for the integration of track and train can begin in 2020.”
He said that there was “no question of anyone receiving a bailout”, but former transport secretary Lord Andrew Adonis said that refusing to ban the operator from bidding for other contracts, as well as awarding an extension to the sister operator on the West Coast rail line, amounted to a reward for failure.
Grayling has previously faced criticism of his plans for the rail network, which include the creation of new partnership operations between franchise operators and state-owned infrastructure firm Network Rail. As part of plans to introduce the partnership on the East Coast route, Grayling announced in January that the franchise would end in 2020, three years early.
Adonis said that such an approach would allow the Stagecoach-Virgin partnership to avoid payments in the final years of the franchise, and criticised civil servants for being “weak” in allowing the proposal to go ahead.
He said he had been approached as transport secretary with a similar request from National Express in 2009, but had nationalised the East Coast line rather than offer an early end to the contract. He has previously described Grayling’s decision as “indefensible” and “a cynical political manoeuvre” to avoid public ownership.
However, the DfT subsequently insisted no bailout has been provided as “profits continue to flow to the taxpayer and any suggestion to the contrary is completely wrong”.