Why taxpayers should mourn Virgin East Coast

Chris Grayling

Chris Grayling

Rail operators Stagecoach and Virgin are handing back control of the East Coast train line to the United Kingdom government after admitting they can not afford to keep it running, the transport secretary said Wednesday.

Transport Secretary Chris Grayling told Parliament that temporary state ownership would provide the smoothest transition to a new operator.

Trains will be run by the Department for Transport through an operator of last resort.

Stagecoach reported losses on the line and in November a year ago Mr Grayling announced that the franchise would be terminated in 2020 to enable it to become a public-private railway.

Faced with such a situation, the department for transport considered two options: to let Stagecoach continue to operate the line on a not for profit basis; or appoint the operator of last resort - in other words, renationalise the line.

The government has said that it does not intend to strip Virgin and Stagecoach of the franchising passports which they hold, and thus they would be able to bid for future franchises.

That may help to solve some issues - for example, reducing the friction between the track operator, Network Rail and the train operator.

But while lessons will be learnt from yet another franchise failure, Grayling, citing the 2013 Brown Review, said that "in an effective railway industry, franchises can occasionally fail".

He told the Commons that the parent companies of VTEC - Stagecoach and Virgin - had "got their bid wrong" in terms of the revenue from the franchise, which was originally due to run until 2023.

He told the Commons that Stagecoach and Virgin have lost nearly £200m, but there had not been a loss to taxpayers "at this time".

The route passed to Virgin Trains East Coast in March 2015.

Today's announcement is not the first time that Britain's flagship line, which stretches 393 miles from London to Edinburgh via Peterborough, York and Newcastle, has been back in government hands.

In 2015, the Conservative government privatised Directly Operated Railways, meaning that a franchise collapse, like the one revealed today, would see the service run by a consortium of three companies - Arup Group, Ernst & Young and SNC-Lavalin rail & Transit.

"When it is fully formed the new LNER operation will be a partnership between the public and private sectors", he said, while adding that the final structure remains to be determined.

LNER, one of the classic "Big Four" railway companies, ran trains including the Flying Scotsman on the Edinburgh-London line from 1923 until nationalisation in 1948.

He added that the firms have paid a "high financial and reputational price" in relation to the East Coast route.

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