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Government could face investigation over Virgin East Coast ‘bailout’

The DfT could be subject to an investigation following the decision to allow Virgin Trains East Coast out of its franchise obligations three years early.

Transport secretary Chris Grayling announced the move earlier this month, sparking fears that the government could miss out on some of the £2bn bill that Stagecoach and Virgin had agreed to pay over the course of the franchise.

In response to the news, Meg Hillier, head of the Public Accounts Committee, said that she would be looking into the situation to make sure taxpayer money was being used responsibly.

“This committee has taken quite a keen interest in franchises, along with our sister committee, the Transport Committee. We recognise it is very early days, but we will be coming to look at this, and I am sure the National Audit Office will be looking at what happens here,” Hillier explained.

During the discussions, which took place last week during a meeting about the Thameslink Programme, the committee debated whether the DfT’s handling of the Virgin East Coast situation would be classed as a “bailout” by the government.

Bernadette Kelly, permanent secretary at the department, said the government was not bailing out the operators but was using the opportunity to trial a new public-private partnership model, which will also be used for the next South Eastern contract.

But Hillier said: “I would just observe that there has been a rocky road on franchising in this country, and there is a danger that a failed bidder being able to get out of the contract – whether or not it is a bailout, and whatever you call it – sends negative signals to those who actually bid properly and have run a franchise properly.”

The choice to let Virgin Trains East Coast out of its contract was taken following news that Stagecoach – which owns 90% of the franchise – had posted losses of 80% to its profits.

Shares in the company soared after the announcement, with a 13% rise to 180.8p in afternoon trading on the day of the news.


Lutz   12/12/2017 at 11:56

The sooner the routes are sold to the operators the better for all.

Huguenot   12/12/2017 at 12:25

Well I can't agree with Lutz, but to say that "the government ... was using the opportunity to trial a new public-private partnership model" is no excuse for letting VTEC/Stagecoach off the hook and foregoing all that income for the taxpayer. Stagecoach making a loss is their pigeon -- they signed up to the franchise agreement. The Government could use its P-P model elsewhere and then on EC when that franchise was due to come to an end. It's disgraceful. Having said that, as I have asked before, why can't operators (we're now on the third one) make the ECML numbers stack up?

Claude Balls   12/12/2017 at 13:38

Maybe VTEC are being pushed before they jump.....

Simon   12/12/2017 at 16:15

A lot of the media coverage surrounding this has omitted the fact that certain of VTEC/Stagecoach's commitments to pay the premium to government were predicated on Network Rail completing various infrastructure upgrades to enable extra services to be run. As Network Rail (itself effectively an extension of government) has not completed these on time, it's doubtful that these payments from VTEC/Stagecoach would have been enforceable anyway even if the contract wasn't being terminated early.

Richard   12/12/2017 at 16:16

...or jumping before they were pushed? Absolutely scandalous manipulation that needs rectifying. As for Lutz's suggestion, cannot for the life opf me see what good could come from that? In fact cherry-picking I suspect would be rife with the potential loss of many more minor routes. The Railway just needs sensible Management, something sadly missing from all four corners of the current structures. As another commentator remarked before, doesn't anybody ask why no other Country has tried this model?

Sonning Cutting   12/12/2017 at 16:21

How refreshing to see the responsible informed comment by Simon, after the inane self-opinionated views of so many. Well done , Simon. Keep up the good work!

Jerry Alderson   12/12/2017 at 17:39

I iterate Sonning Cutting's praise of Simon, I would have written the same had Simon not got there first. What ought to be quantified - as much as is possible to do so - is the financial impact Network Rail's failure to deliver the infrastructure has had on the VTEC business plan. Clearly VTEC made an optimistic bid since its revenue to date has not been as high as it anticipated and it has not relied upon new infrastructure up to this point in time. As I always said about Alistair Darling's 'Cap and Collar' invention, once a TOC gets on the collar (or is being subsidised by its owner, as VTEC is) it will never get off it because the franchise is too short. Even if NR had delivered I don't think VTEC would have turned around the business to nit the original forecasts. This is because the premium payments to government ratchet up significantly over the course of the franchise. The DfT-owned East Coast operation had the advantage of not agreeing any premium payment schedule up front and being a BAU business without any significant expansion.

Ian Watkins   12/12/2017 at 17:42

If there is an investigation then lets hope they also look at why the DfT let the franchise to a company that couldn't make the numbers stack up. All this chopping and changing of franchisees does nobody any favours. So why did the DfT not spot the numbers didn't add up?

Stuart Solomons   12/12/2017 at 23:26

The sooner someone takes over from Virgin the better. Since they have been in charge of East Coast trains, their services have been appalling.We travel on a regular basis and nearly every time trains have been late or delayed. We travelled to Leeds two weeks ago and the train we were booked on from Leeds was cancelled 15 minutes before it was due to leave, so the next train was due 30 minutes later. We filled in a compensation form and received an email saying that the next train was departed less than 30 minutes later. That is rubbish as the trains from Leeds to Kings Cross leave every 30 minutes. I would never praise the service as it is terrible .

David Winter   13/12/2017 at 03:53

I think all are missing the point. 90% owner's profits are down the gurgler due to massive industrial strife south of London, compounded by the London Bridge works. In essence, the challenges faced by Stagecoach are such that it is likely good management to have them focussed on sorting GTR.

DP   13/12/2017 at 08:18

Can't agree with you there Stuart Solomons. I commute with VTEC on a daily basis and think it's done a pretty good job of modernising the EC service where it can, installing new ticket machines, opening new customer service kiosks and updating train interiors. The nature of the ECML means delays along it are almost always caused by factors beyond VTEC's control - overhead lines being the main one from experience. Maybe I've just been lucky, but I suspect not considering I use VTEC twice a day, five days a week.

Jak Jaye   13/12/2017 at 09:32

The DFt 'could' be subject to an investigation yea right,good luck with that! how much longer is it going to take for people to wake up and smell the coffee? privatisng the railway has been an utter disaster from day one when the trains and track,signaling were split up and giving franchises to cowboy operaters such as Virgin compounds the problems,do these people really think putting new paint and stickers make for a more efficient railway? ...meanwhile the shambles at London Waterloo enters its third day!

CMD   13/12/2017 at 22:24

@Stuart Solomons: Delay Repay is calculated based on the amount of minutes between your scheduled arrival at the destination of your initial booked journey and your actual arrival at your destination, not departure. VTEC compensates ALL claims with over 30mins delay.

Martin Reid   30/12/2017 at 13:56

How hard is it to run a few trains up and down a line all they have to do these private companies we do everything else for them and subsidise them

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