MPs plan to scrutinise early termination of East Coast rail franchise as DfT denies bailout

Rebecca Smith
The East Coast rail franchise is operated by a Stagecoach-Virgin Group joint venture
The East Coast rail franchise is operated by a Stagecoach-Virgin Group joint venture (Source: Virgin)

The Department for Transport today denied claims it had bailed out the East Coast rail franchise, as MPs said they intended to scrutinise the decision.

Chair of the Public Accounts Committee Meg Hillier said at the beginning of a separate session: "We recognise it's very early days, but we will be coming to look at this."

Last week the government said it would be intervening on the East Coast rail franchise and terminating the contract three years early.

Read more: Stagecoach shares rev up as it strikes an optimistic note

Under a rail strategy unveiled by transport secretary Chris Grayling last week, a new partnership model replaces the underperforming set-up of Virgin Trains East Coast (Vtec).

The train operator is a joint venture led by Stagecoach with Sir Richard Branson's Virgin Group. Stagecoach said back in June that it had booked an £84m pre-tax charge to cover losses on the route.

But critics, including former Labour transport secretary and current chair of the National Infrastructure Commission, Lord Adonis, have branded the move "a bailout" and said the government had "serious questions" to answer over the move.

The permanent secretary at the DfT, Bernadette Kelly, told the PAC today:

It is not a bailout. What the secretary of state has announced is a plan from 2020, we will develop a new public-private partnership to ensure that we've got a sustainable basis for taking services forward on the East Coast in the interests of passengers.

The PAC said today it is liaising with the Transport Select Committee on the matter, with Hillier adding that she was sure the National Audit Office "will be looking at what happens here" too.

"What we have said and what I will repeat is that we fully expect all of the financial obligations that Stagecoach has entered into to be met in full," Kelly said today.

"What we need to recognise I think, is that this is a franchise which on its own admission is in some financial difficulty, so we need to find a way forward which preserves services for passengers and which delivers a good deal both for those passengers and for taxpayers," she said. "That is what we are focused on: finding a commercially sustainable way forward for this franchise which also delivers better services for passengers."

PAC chair Hillier said the decision risked sending out the wrong signal to other train operators.

"There's a danger a failed bidder being able to get out of a contract, whether or not it's a bailout or whatever you call it, is sending negative signals to those who actually bid properly and have run a franchise properly," she said.

Labour shadow transport secretary Andy McDonald meanwhile, said:

It’s worthwhile for the Transport and Public Accounts Committees to expose the full details of this waste of taxpayer cash but with three private operators failing on the route in just 10 years, we don’t need another lengthy report to tell us what we already know: privatisation has failed and our railway should be brought back into public ownership.

Read more: Government unveils plans to restore lost rail services across Britain

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