The transport secretary Chris Grayling announced on February 5 that Virgin Trains East Coast, the franchise running services from London to Leeds, Edinburgh, York and Newcastle, is near collapse due to lower-than-expected passenger numbers. The franchise, a joint venture with 90% owned by Stagecoach and 10% owned by Richard Branson’s Virgin Group, admitted to overbidding after pledging £3.3bn to run the service until 2023. So far, it has only paid around £1bn to the government since taking over the route in 2015, leaving the taxpayer £2bn short. With some analysts estimating that the extent of Virgin Trains East Coast’s financial loss is likely to not be much more than the value of their deposit (£165m), there have been calls for heavier punishments for franchises which fail to fulfil their obligations.
Chris Grayling now has two choices:
- to renationalise the line, which is unlikely given his party’s ideological opposition to this.
- to offer the franchise a short-term, not-for-profit contract, with the government effectively taking on all the risk.
Critics have called the latter solution ‘corporate welfare’, and the Transport Select Committee has launched an inquiry.
According to YouGov, public support for nationalised railway companies stood at 60% in May 2017. Given that the east coast mainline was reprivatised just over 2 years ago, promising a better deal for the taxpayer yet ending up in breach of contract, it is not unlikely that this current crisis will only boost the numbers of those hoping for a radical change in the way the country’s railways are run, especially given this year’s 3.4% fare increase (the largest in five years).
Shadow chancellor John McDonnell used this as an opportunity to renew calls for renationalisation, declaring it to be an economic necessity to put public services ‘irreversibly in the hands of the workers’ at Labour’s alternative models of leadership conference on February 10. Andrew Adonis, the transport secretary responsible for the 2009 renationalisation of the east coast line due to the collapse of National Express East Coast, did not go as far as to support Labour’s proposals of full nationalisation, but admitted the current system is ‘disastrous’ and has spiralled ‘out of control’. Chris Grayling said that ‘there is no question of anyone receiving a bailout’ and that the franchise ‘will be held to all of its contractual obligations in full’, but the future of the rail franchising system still looks bleak.
Image: [The Independent]