The government is taking back control of the East Coast Mainline rail franchise after reviewing the performance of Stagecoach and Virgin Trains.
Chris Grayling, secretary of state for transport, said the decision had been taken in order to ensure the “smoothest possible transition” from the existing contract to a new public-private partnership model.
Although the contract will not officially be terminated until 24 June 2018, Grayling said an “operator of last resort”, or a team of civil servants, would take immediate control of passenger services.
In February this year the government admitted the joint venture had overbid for the contract and were projected to run out of money in a matter of months, well before the contract was due to come to an end in 2020. At the time Grayling said the government would consider its options going forward.
In a statement to parliament today, Grayling said his department had considered allowing the joint venture to continue running the contract on a “not for profit” basis, but decided that taking the contract in-house temporarily would help the government implement its existing plans to restructure the way they franchise rail contracts.
Grayling said: “The [Department for Transport’s] analysis suggested the case was very finely balanced, with some elements favouring a contract with the existing operator and others favouring the operator of last resort. When judging against my key principles, neither option was obviously superior.
“So given the finely-balanced judgement, I have taken into account broader considerations and decided to use the current difficulties to drive our long-term plans for the East Coast Partnership.”
The government has also published a report on its decision.
The East Coast Partnership is part of government plans, announced last November, to restructure rail franchises in order to bring management of infrastructure and rolling stock together.
Currently state-owned Network Rail manages infrastructure, while private firms bid to operate regional rail services. Under the new model, Network Rail and the private operator will work under a unified management team and a single brand as part of a “long-term partnership”.
The government hopes this will improve the rail service by creating a closer alignment of incentives between infrastructure management and and rail operators.
Grayling also announced the East Coast Partnership would be branded the London and North Eastern Railway – the name of the railway company to run the line before it was nationalised in the 1940s.
Andy McDonald, Labour’s shadow transport secretary, said the East Coast Partnership was a “smokescreen” to hide the failure of rail privatisation.
“Private operators have failed three times in under a decade on the East Coast route, the last time resulting in a £2bn taxpayer bailout,” he said, referring to the government’s waiver of part of the payment due for the East Coast Mainline franchise.
Martin Griffiths, group chief executive of Stagecoach, the majority partner of the joint venture, said he was “surprised and disappointed” with the government’s decision. “We believe our plans offered a positive, value-for-money way forward for passengers, taxpayers and local communities,” he said.
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