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01.12.17

East Coast franchise to end early as Grayling accused of ‘misleading’

The Virgin East Coast franchise is to end three years early, in 2020, transport secretary Chris Grayling announced yesterday.

The decision has sparked financial concerns across the industry as the franchise – owned jointly by Stagecoach and Virgin – had agreed to pay the government £3.3bn to run the service until 2023.

When a new operator is chosen for the service it is expected to run under the public-private ‘East Coast Partnership’ likely to be similar to the model announced for the next South Eastern franchise.

The decision is the first major development on news from June this year that Stagecoach had taken an 80% hit to its profits because of its troublesome dealings with the franchise.

Opponents to the move say the government is bailing out the parent company by allowing it to walk out of potential £2bn payments it owes to the treasury.

Andy McDonald, Labour’s shadow transport secretary, said the franchise should go back to the public ownership model it worked under after National Express pulled out in a similar fashion in 2009.

“The government is trying to bury the news that they’re giving Stagecoach and Virgin a get out of jail free card to walk away from their franchise and a potential £2billion of payments to the Treasury,” he continued.

“It is outrageous that the transport secretary Chris Grayling is refusing to answer what the true cost to the public purse will be.

“Under public ownership, the East Coast Mainline returned over £1bn to the Treasury, outperformed its commercial competitors and kept fares down when no private operators made the same move.”

In a letter to the transport secretary he added: “It is abundantly clear that despite your assertions to the contrary, you have indeed bailed out Stagecoach/Virgin and I would urge you to confirm that the position is as I describe it.

“Without such clarification, I regret to say that your statement as it stands misleads the House of Commons and I would urge you to correct the position as a matter of supreme urgency, by placing a letter of explanation in the House of Commons library today.”

RTM has contacted the DfT and is awaiting a response.

Shares in Stagecoach soared following the news, with a 13% rise to 180.8p in afternoon trading.

The news comes in a busy week for the DfT, with Grayling announcing a raft of new policies on Wednesday, including the new franchising model – meant to create a partnership between track and train operators, with both the TOC and Network Rail working under one director on each franchise.

In addition, the government said it would begin to look at some of the lines closed during the Beeching cuts in the 1960s with a view to reopening some lines for passenger use.

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Comments

King's Lynn   01/12/2017 at 10:05

What's this? Grayling trying to hide bad news (subject of this article) with 'better news' (the whole reopening/reorganisation thing)? Not seen that before... Oh, no, wait a sec...

Andrew Gwilt   01/12/2017 at 10:06

That is 3 years too early. Next year the Class 800’s and Class 801’s IET’s will soon enter service to replace the Class 91’s Mk 4’s Intercity and Class 43’s Mk3 HST’s.

Huguenot   01/12/2017 at 11:56

What is it about the East Coast franchise that this is the third operator to walk away from it? ECML trains seem to be well-used and the fares are not cheap. I'm no fan of nationalisation, but if Directly Operated Railways was able to make a profit running the line, why can't anyone else?

Burtocamb   01/12/2017 at 12:10

Every company has made a profit with a ECML franchise: it's just that two of them promised more than could be reasonably delivered. GNER fell largely because of finance problems with its parent company,Sea Containers, as well as a drop in patronage. DfT is also partly responsible for surprising gullibilty on franchisee potential business claims; the civil servants had all the required computer economic models for the East Coast business over several decades for studying. They really ought to have understood the significance of historical trends and, thereby, the plausibility of tenders for the franchise.

Walace58   01/12/2017 at 13:54

Although DOR returned money to the government did it actually make any investment in trains, customer service etc to improve the lot of the customer? All the private franchisees appear to have to make big promises on the improvements they will carry out. Under BR there was little or no investment as the money had to actually come from Government coffers. Unless we have private franchisees where is the investment money going to come from?

Lutz   01/12/2017 at 14:04

The problem here seems to originate from the DfT's Rail Executive; waiting now to hear the full details of what is going on within the franchise management team that could lead to this change to the agreement without penalties being incurred by the franchise.

Westernrenown   01/12/2017 at 15:21

Other than painting everything red I don’t notice any significant different between the way the ECML operates under VTEC as opposed to DOR. I would say that that measures to judge this would be on PPM, Customer satisfactory etc. VTEC have made great play of throwing money at the trains, but is this on anything more than seat covers and vinyl?

Jak Jaye   01/12/2017 at 15:49

When will the smirky Grayling wake up and smell the coffee the bearded one/slippery Souter are taking us the tax payer for a rise,the day he announced the franchise change their shares jumped 12% says it all really and you wonder why no other country has gone down the same route

Andrew   01/12/2017 at 17:31

They should never had got the franchise in the first place already having the West Coast Main line.I thought it was meant to be all about competition not monopoly.

Andrew JG   02/12/2017 at 11:08

First Group could take over the East Coast franchise to become First East Coast. Or other rail franchises such as Trenitalia, Abellio, MTR, Arriva or JR East/Mitsui could also take over the EC franchise. Aswell JR West/Mitsui that could take over the West Coast franchise as Virgin Trains are also set to lose its WC franchise.

Disgusted   02/12/2017 at 14:50

Well DfT have managed to sink to a new low in their shenanigans and deviousness to protect the Franchising system. BR was rightly slammed many times for mismanagement of money but still managed to do a lot with very little. DfT's management of the Railway is nothing short of scandalous, even corrupt and they manage to do very little with an awful lot - of taxpayers money, seemingly with impunity. Rather than see a third Private Sector Operator fail on East Coast, they wriggle and tweak the Rules to let Stagecoach off the hook. Feeble, pathetic and amateur are words that are too kind for their efforts! Where is the accountability?

Peter Jarvis   02/12/2017 at 16:52

Railways can generally cover their revenue running costs, but capital improvements are difficult to find from fares. So outside bodies may give grants. A railway in Wales has had a grant from the EU. Now....

Tom Bell   02/12/2017 at 20:49

The public-run operation from 2009 to 2015 returned money to the Treasury, yet were not allowed to bid for the current contract which appears to gave turned sour. How corrupt is that ?

Clive   02/12/2017 at 21:45

The article and the comments concentrate on the financial situation. Does anybody give any thought to staff morale? Back in time, a job with (say) the Great Western Railway was a job for life. It is well known that this engendered tremendous loyalty to the company. How much company loyalty can you expect when the management changes so frequently?

DP   04/12/2017 at 08:30

VTEC isn't operating at a loss per se, it's handing the franchise back early because the hefty franchise payments it would have been paying the government in the last few years are far more than it would have been making from the service. I'm certainly no fan of the current arrangement but I can also remember the days of BR, which weren't the bed of roses people seem to think they were. East Coast did well from 2009 to 2015, but it was only able to 'turn a profit' because it made next to no investment in the service. I've been quite impressed with VTEC, from big changes like new services and ticket machines (when they work) to things as small as introducing train plans at stations to show passengers where to stand for their carriage.

Neil Palmer   04/12/2017 at 19:04

As Walace58 said, DOR returned a "profit" because it invested next to nothing. The new franchise agreement had Virgin/Stagecoach commit to a load of investment, including the high lease costs for the (government imposed and overpriced) IEP. Not to mention the money they put into refurbishing the current rolling stock (which was frankly left in a disgraceful condition by DOR). To be fair Virgin/Stagecoach the assumptions (promises?) made at the time the franchise was agreed are no longer valid. Those include continued infrastructure failures (down to Network Rail), promised enhancements to the ECML not delivered (down to government/Network Rail), and the FirstGroup open access deal made after the franchise was awarded (again down to a government department). If anything it looks like government has failed to deliver their end of the deal and has changed the rules/playing field after the agreement was signed.

Simon Eames1990   05/12/2017 at 22:22

Grayling's a real liar. Let the ECML down.

Chris M   06/12/2017 at 21:08

Neil, the 'investment' that Virgin/Stagecoach has made in the current franchise is minimal - essentially just rebranding the various British Rail rolling stock. And the IEP leasing charges were never going to come from their pockets, it was to paid for from future fare income. In reality this train operator has yet again escaped the true consequences of it's unrealistic franchise bid because the government body that was responsible for enhancing the infrastructure has again failed to do what it promised. So with the threat of legal action it means they have the government over a barrel.

Richard   07/12/2017 at 12:50

Interesting, and excellent, that Lord Adonis has submitted a FOI request for all the details on this Bid and subsequent Franchise. Fundamentally the Dft has shown yet again it's complete bungling in the handling and negotiation of Contracts and these Contracts boil down to Public Money investment. We are all being totally let down and ripped off, both as "Investors" and as Passengers. The issue of investment by the current Franchise Operators is somewhat distorted also. The prime target is "profit". GNER made substantial investment in stock upgrades, Eurostar trains and other things but the money got tight when Premiums were due, partly due to recession. National Express promised the earth, made far less investment but couldn't make a return. DOR made no promises as they were essentially a shoehorn but made some minor investment which allowed it to pay a premium. Virgin promised the earth, have made minor investment but a lot of noise, in particular over Azuma's which are actually publicly funded, but can't make a return. So step in taxpayer to save face and the reputation of Franchising smothered in tales of a new streamlined joint Industry. They must think we're mugs, but we are as we let it continue!

DP   08/12/2017 at 08:33

Richard, didn't Albert Einstein once say insanity is doing the same thing over and over again and expecting different results. NXEC offered £1.4 billion over 8 years and found that too steep, so what does the government do 6 years later? Accepts an offer of £3.3 billion over 8 years to run exactly the same route with exactly the same rolling stock. Franchising is being driven entirely by political ideology, anyone looking at it objectively would see that it's fundamentally flawed.

David Blackman   01/01/2018 at 14:56

Incompetent morons in Westminster again, have they not heard the saying - if it is not broken, don’t fix it. The public ownership East Coast was a good railway, which should have been left to get on with it.

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