What future for railways after West Coast reversal?

Virgin train Virgin will be reimbursed for the cost of its bid for the West Coast train franchise

It sounded too good to be true, and perhaps we have now had confirmation it was.

First Group appeared to have won the West Coast Main Line franchise by offering the government much more than any firm had paid before for a service.

The deal would have seen the company pay back more than five times as much as Virgin paid for the previous deal.

It was an offer then that came in the middle of a recession to a government in need of every penny.

The fall-out from today now suggests it was as unrealistic as it was tempting.

Flawed assumptions

Now that deal has collapsed.

FirstGroup may challenge the decision but the government has now decided it was based on flawed assumptions about whether it was viable.

And so the West Coast Main Line could end up being run for a while by the state in the same way as its equivalent on the east coast.

In addition, the franchising process now looks so discredited that a reprivatisation of the East Coast Main Line early next year looks unlikely to happen.

FirstGroup staff FirstGroup could challenge the government's decision

So could this be the beginning of the end for rail privatisation?

Supporters of ending private ownership point to the contributions made to the public coffers by the publicly-owned East Coast.

Last year, it could pay the Treasury £187m and £170m the year before because it has no shareholders to reward.

It's possible then - as long as it is well-run - that a publicly-owned railway could actually deliver a better deal to the Treasury than a private franchise.

And Labour has now said it would keep East Coast in public hands as a comparator with the private franchises.

It also believes the West Coast should be run on the same basis.

Shadow transport secretary Maria Eagle said: "Passengers and staff deserve immediate reassurance about the future of the West Coast service.

"If the government now transfers the running of this line to its own not for private profit rail company, as seems sensible and likely, then Labour will support that decision.

"Ministers must also now abandon the planned privatisation of the East Coast line."

Policy 'minefield'

But Labour is still a long way short of committing to end privatisation.

It has not talked about unpicking any of the other franchise deals. Its transport policies are under review but would it really be prepared to enter that minefield?

Sir Richard Branson Virgin Trains ran the West Coast Main Line for 15 years but lost the franchise to FirstGroup

The existing franchising system though looks like it might have reached the end of the line.

Labour itself had huge problems with it - accepting bids from GNER and National Express on the East Coast Main Line that looked lucrative but proved undeliverable.

FirstGroup is also handing back the Great Western franchise because it cannot meet the financial commitments.

Many passengers are also unhappy that fares seem to be on a perennial above inflation, upward trajectory.

Yet, of course, there is always the danger of looking at pre-privatisation British Rail through rose-coloured spectacles.

Few would argue life was perfect then.

Future franchises

Start Quote

Patrick McLoughlin

"I want to make sure what lessons need to be learnt from what went wrong”

End Quote Patrick McLoughlin Transport secretary

But politicians may look more closely now at the state-run railways on the continent - some of whom actually run British franchises.

And for now at least the franchising contests have hit the buffers.

Three other competitions have been "paused".

Transport secretary Patrick McLoughlin said: "I want to make sure what lessons need to be learnt from what went wrong with this have not been repeated in those particular franchises."

The question is can the government reform the current system or is it irredeemable?

At the moment it's hard to predict the direction of travel for our privatised railways, and what the final destination will be.

I'd be interested to hear your thoughts and comments.

Richard Moss Article written by Richard Moss Richard Moss Political editor, North East & Cumbria

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  • rate this

    Comment number 83.

    The best thing that could happen is the Government bringing back British Rail so that we have a railway system that works and does not cost the taxpayer millions if a deal goes wrong. Failing that they should have a state run railway company and a private run one and let the people decide which one they want to use a cheap and reliable public one or a expensive and unreliable private one.

  • rate this

    Comment number 82.

    Bit rich seeing Labour crow over the Government's discomfiture as a result of this failure. These were the same people, systems, modelling and tests Labour put in place but its lts like they had nowt to do with it!

    Labour made the DfT into a meddlesome micro managing colossus which didn't have a clue. Two franchises on ECML went pear shaped as a result. Get Roger Salmon and OPRAF back now!

  • rate this

    Comment number 81.

    The open access operators (First Hull Trains & Grand Central) offer the best passenger satisfaction figures according to Passenger Focus. East Coast offers the worst.

    There's a new open access operator wanting to operate on the WCML & ECML. Its time to turn the tables. Let open access be the default and only franchise where necessary. True free market competion gives the best deal for passengers.

  • rate this

    Comment number 80.

    Roads, railways, airports, health care, welfare, the economy, immigration all need LONG TERM planning. They should not be the election playthings of politicians. They should be publically funded but centrally planned by non-partisan specialists. Insane knee-jerk Government policies are wrecking the country.

  • rate this

    Comment number 79.

    Well #78 is nearly right. Firstgroup decided not to exercise an option to extend their Great Western franchise-but it can't be said they couldn't meet the £800 million this would have cost them. They chose not to. They were perfectly entitled to do that, although of course they could now lose the franchise. In all this public interest comes nowhere.

  • rate this

    Comment number 78.

    First Group is NOT handing back the Greater Western franchise as they 'cannot meet the financial commitments' - they have chosen not to take up an OPTIONAL extension of their franchise, something that makes sense when you think about the planned electrification of part of their routes and the upheaval that would cause. They will most likely bid for the GW franchise again, and hopefully get it.

  • rate this

    Comment number 77.

    The big mistake is to take away the franchise from a private company which is running the service reasonably well.

    One thing is guaranteed. If the public-sector can't evaluate tenders correctly, how on earth will they be able to run the railway efficiently and effectively.

  • rate this

    Comment number 76.

    It was originally sold off to raise funds, the decision had nothing to do with improvement and was all about Tory fund raising to cover the tax deductions they wanted to handout. We were misled at the time about it and they marketed it as a "let's give it to private companies so it's better managed". All we got were over inflated fare increases and that's all we'll get whoever runs it.

  • rate this

    Comment number 75.

    Nonsense. A few transport economists at the DfT made a couple of technical misjudgments which should have been picked up by an overseeing technical panel.
    Happens all the time. Everywhere.

  • rate this

    Comment number 74.

    if labour want to be in number 10 again then bring back the railways in to state ownership (british rail). once again an invention to the world we end up being a laughing stock. privatisation has done nothing but provide shareholders with lots of money including regional managers throughout the network.

  • rate this

    Comment number 73.

    If British Railways had received the amount of government subsidy that the private operators have received over the years, to say nothing of the vast sums poured into servicing the impenetrable post-privatisation bureaucracy, Britain would probably now have a world class railway network.

  • rate this

    Comment number 72.

    The problem here lies with a lack of commercial skills within goverment. Deals like this are successfully let all the time in the private sector so why does the government get it wrong every time.

    And as for nationalising the West Coast - I'm sorry but public sector employees will never offer the same level of service that Virgin staff do.

  • rate this

    Comment number 71.

    I am now assuming that the problem was that the premium was not properly index linked and that when inflation lets rip it would be worthless but the authorities SUGGEST that the problem was that FGP would be paying too much. Both are incredible but WHICH IS IT?

  • rate this

    Comment number 70.

    The current East Coast model seems to working really well...rare praise
    to Gordon Brown! Let them all become like this.
    Anyone wanna bet the current NHS debacle produces bailouts for private companies with taxpayers money? Private companies are only good at putting up prices to cover their inefficiencies..viz Utilites,Train Co's etc.
    Enough is enough.

  • rate this

    Comment number 69.

    Too young to remember what public railways were like - but would imagine there were difficulties justifying investment in new carriages when x number of nurses could be recruited?

  • rate this

    Comment number 68.

    I remember what it was like before privatisation. Investment which was being most european countries. The railways have been transformed. With both private and public money. There are countless examples of improvements, In the mid 1990's I used the Newcastle - B'ham services - there was a train every 2 hours and the last one was 5pm. Now there are 1 trains an hour.

  • rate this

    Comment number 67.

    I propose removing Limited Liability provision for companies who are fined. There should be a personal liability for company directors/officers when their companies are fined for breaking the law. If Bankers, Airlines, Rail Companies had been forced to make their directors pay the fines in the last few years, the cupboard would be a lot cleaner. This should only be for fines not damages awards.

  • rate this

    Comment number 66.

    57. Charlie1902

    "...if a company can do these things and make a profit why can't the government do it without making a loss?" and "...they at least don't have greedy shareholders demanding a rise in profit year-on-year that would otherwise go into re-investiments?"

    Higher profit = lower wages = Capitalism
    Higher wages = lower profit = Nationalization

    You can't have both.

  • rate this

    Comment number 65.

    People are unhappy with the situation & with good reason, we now subsidise the rail companies between 3 and 4 times as much in real terms as we did under the days of BR depending on your choice of figures. While ticket prices have risen even more. This hasn’t come with corresponding better service because we are paying the dividends. Pull all subsidies/ban dividends, if they fail renationalise/

  • rate this

    Comment number 64.

    As a rail worker we are fed up with the profits going to shareholders and safe working practices being put under pressure to bring in more profits and fares being raised by unfair amounts bring back BR


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