Chris Grayling's department ‘must share blame’ for collapse of East Coast rail franchise, say MPs
Ministers cannot shirk responsibility for the collapse of the East Coast rail franchise, a new report from MPs has said.
The major rail route - which runs between London, Yorkshire and Scotland - was taken back into state control earlier this year after operators Virgin and Stagecoach admitted they could not meet their payments on the £3.3bn contract.
The u-turn marked the third time a private operator had failed to see out the full contract on the East Coast service, which was previously taken back into public hands between 2009 and 2015.
In a new report on the latest collapse, MPs on the cross-party Commons Transport Committee say the Department for Transport must share blame with the two firms and call for “fundamental” reform of Britain’s railways.
The committee points out that, at the time of the franchise failure, the Virgin Trains East Coast (VTEC) line “was amongst the highest performing long-distance franchises on the network”, generating a £260m annual profit.
However, they say the firms used “over-optimistic” projections when bidding for the contract, and “simply ran out of money”, leaving themselves unable to meet the payments required by the department under the terms of the deal.
“Their assessment of the financial risk associated with their bid was wholly inadequate and VTEC’s bid for the franchise was over-optimistic,” the commitee says.
While the MPs say Stagecoach and Virgin “bear prime responsibility for the failure of this franchise”, they say ministers must also “take responsibility for not managing the bid process effectively enough”.
The report accuses the Department for Transport of having “encouraged overbidding” and set “unrealistic benchmarks” when asking firms to bid on the franchise, and says: “If the DfT had conducted appropriate due diligence and identified weaknesses in the assumptions underpinning the bid, it may not have been in this position today.”
Launching the report, Transport Committee chair Lilian Greenwood cast doubt on the Government's ability to prevent a repeat of the franchise failure.
"The Secretary of State pointed the finger at Stagecoach and Virgin for getting their bids wrong, but the Department is not blameless," she said.
"Even now, there is no concrete plan, nor timescales, for the interim operator of this franchise. From our inquiry, we cannot be sure, and cannot reassure passengers or public, that the arrangements for the East Coast Partnership will more successfully overcome the systemic difficulties presented by the current set-up."
Ms Greenwood added: "Following the failure of the East Coast line, there is talk that the Prime Minister has ordered a major review of rail franchising – we await more details.
"However, if this or any other future partnership arrangement is truly going to deliver a step-change in performance for the passenger, more fundamental reform of our railways is required."
A DfT spokesperson said the committee’s report showed that Stagecoach had "overbid for this franchise and paid the price".
They added: "We also welcome their confirmation that losses were borne by the company, not passengers or taxpayers.
"We are now preparing for East Coast Partnership - bringing together the operation of track and train to deliver a high quality service to passengers and value for money for the taxpayer.
"We want train companies to have a greater role in infrastructure planning to help them act as stewards for the rail network and deliver the greatest possible benefits for passengers.
"We have introduced new measures to deter over-bidding for franchises and improved our financial modelling and stress testing. Bids are now assessed with a greater emphasis on overall value for the passenger."
A Stagecoach Group spokesperson said: "We welcome the Committee's endorsement of the high quality of service and investment provided for passengers by Virgin Trains East Coast and the operational success of what it acknowledges was a profitable franchise.
"We've operated railways on behalf of the government for more than 20 years and in developing our plans we used the same bold, ambitious and meticulous approach which delivered strong success in the past."
They added: "As the Committee makes absolutely clear, there was no incentive to deliberately overbid and there was no taxpayer bailout in the unfortunate premature end to the contract.
"Most importantly, we are pleased the Committee has supported our positive suggestions to reform franchising, including more appropriate risk-sharing, making the system more accountable and robust, and ensuring that the customers and communities who rely on the railway see promised infrastructure and service improvements in full and on time."