Government strips Stagecoach of Virgin East Coast franchise

Oliver Gill
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The Conservative Party Conference 2016 - Day Two
Chris Grayling insisted the government move did not mean the East Coast mainline was failing (Source: Getty)

The government today renationalised Britain's East Coast railway, stripping Stagecoach of its loss-making franchise.

Transport secretary Chris Grayling appointed an "operator of last resort" to replace Virgin Trains East Coast – a joint venture between Stagecoach and Virgin.

The historic London and North Eastern Railway (LNER) livery will return. A new board and an independent chair will be appointed with the formal handover taking place on 24 June – former John Lewis boss and current West Midlands mayor Andy Street has been hired to advise LNER.

The renationalisation is the third time in a decade that the keys to the line have been handed back to the government. Grayling insisted the government's decision to take control of the franchise "was not because the route is failing".

Instead, he said:

Stagecoach and Virgin Trains got their bid wrong and they are now paying the price.

"Surprised and disappointed"

Stagecoach boss Martin Griffiths said he was "surprised and disappointed" at the government's decision. The firm will take a £75m hit to profits as a result of the decision. However, Stagecoach said the announcement would not prevent it from bidding for other rail franchises in the future.

Shares dipped around six per cent in the minutes after the announcement before sharply regaining lost ground.

Read more: Corbyn’s traingate tiff with Virgin Trains put transport issues on the map

In November it was announced the east coast franchise structure in its current form would be replaced by a partnership in 2020, which would see the operator take responsibility for the rail infrastructure as well as the operations. Under the changes, Stagecoach, which owns 90 per cent of the route, would step down three years early.

However, in February Grayling said the loss-making franchise – which has cost its owners almost £200m – would run out of money "in months".

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.

Grayling said consideration of the two options had been "finely balanced" and “neither option was obviously superior”. However, he said, the decision to elect an operator of last resort was selected to provide a better transition towards the partnership model the Tories want to implement.

Transport groups underlined a point made by the government – that with 92 per cent passenger satisfaction scores, East Coast services are some of the best-rated by users.

"Having more stability in the underlying contract between Government and the train company will help achieve these things that matter most to passengers," said Anthony Smith, the chief executive of watchdog Transport Focus.

While reliability must continue to improve, and promised and new investments made, passengers will continue to judge services by the performance on the day of the train company and Network Rail, value for money, cleanliness of the train and crowding levels.

Read more: Empty first class train seats are going to be auctioned to passengers

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