Rail network in crisis after franchise debacle

Thursday 4 October 2012

BRITAIN'S railway system has been plunged into one of its worst crises since privatisation after a "flawed" competition to run train services on the cross-Border West Coast Main Line was cancelled and three senior Department for Transport (DfT) officials suspended.

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DAMIEN HENDERSON and KATE DEVLIN

In a humiliating statement, Transport Secretary Patrick McLoughlin conceded there had been significant technical flaws in the decision to strip Virgin Trains of the flagship franchise and hand it to Aberdeen-based rival FirstGroup.

FirstGroup's shares ended the day down 20% at 193.4p, wiping £244 million off its stock market value.

However, taxpayers will also face a £40m hit as the DfT will be paying back the money the four bidders spent on their franchise offers.Meanwhile, an urgent review of the process is being undertaken and will report back by the end of October. A second review of the entire rail franchising process, undertaken by Eurostar chairman Richard Brown, will report in December, Mr McLoughlin said.The immediate future of the London-to-Scotland route was left in turmoil, as the DfT was unable to say whether it would be temporarily renationalised or continue to be run by Virgin Trains on December 9. The renewal of three other franchises in England has been put on hold.A DfT spokesman said a competition to return East Coast trains to the private sector by December 2013 following an emergency renationalisation of the cross-Border service three years ago would not be affected. However, industry sources said the timetable for that process was tight and could be delayed by the franchise review.Transpennine and Cross Country are the two other cross-Border franchises that may now be affected.The dramatic U-turn follows a legal challenge by Virgin Trains that had alleged the winning bid tabled by FirstGroup was overly optimistic and risked a re-run of the collapse of the East Coast passenger franchise, which National Express abandoned in 2009.Mr McLoughlin indicated the DfT would no longer defend Virgin's legal challenge.It is a humiliating admission of failure for the Coalition, which had promised to overhaul the rail franchise system and end the "micro-management" of train firms that had spread under Labour by offering train companies greater freedom to decide how to run services.Labour leader Ed Miliband dubbed the West Coast process "a fiasco and another Government screw-up" while rail union TSSA spoke of passengers paying "sky-high prices for this long-running farce".Scottish Transport Secretary Keith Brown demanded an urgent meeting with the UK Transport Secretary and an explanation of the impact of this decision for Scotland's rail users.After months of defending attacks by Virgin boss Sir Richard Branson, who branded the West Coast decision insane, Mr McLoughlin said the blame should be laid "fairly and squarely" with the DfT. He said: "The original model didn't take into account inflation and also some elements of the passenger number increases over a number of years."I want to make it absolutely clear that neither FirstGroup nor Virgin did anything wrong. The fault of this lies wholly and squarely with the DfT. Both of those two companies acted properly on the advice they were getting from the department."Officials at the DfT were later unable to say who would take over West Coast train services on December 9 from Virgin, although they insisted passengers would not be affected and any advance tickets would be honoured.A management team at Directly Operated Railways, a Government-owned company set up to take over train services on the East Coast Main Line in 2009, has already been mobilised to take over the West Coast route in case the legal dispute with Virgin was not resolved in time.Among those taken aback by the decision was FirstGroup, which had spent much of Monday assuring the public and investors it was primed to take over the service on December 9.A spokesman said the company had only been informed late on Monday evening that the competition had been cancelled. "Until this point we had absolutely no indication there were any issues with the franchise letting process and had received assurances from the DfT that their processes were robust and they expected to sign the contract soon," he said.At his party's conference in Manchester, Mr Miliband rounded on the Coalition and demanded Mr Cameron name the minister in charge of the process. Mr McLoughlin became Transport Secretary in September, succeeding Justine Greening. "The Prime Minister needs to get a grip on his incompetent Government and he needs to say who knew what when," he demanded. "Who was oversee- ing [the decision]? Which of the Transport Secretaries that we have had was responsible for this?"

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Rail network in crisis after franchise debacle

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