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National Express East Coast bail out to cost taxpayer £700m
Nicholas Cecil and Jonathan Prynn01.07.09
Taxpayers are to be saddled with a huge bill for today's renationalisation of Britain's premier high-speed rail line, the Standard can reveal.
Transport Secretary Lord Adonis was forced to take control of the 393-mile East Coast Main Line between King's Cross and Edinburgh after the failure of talks with its operator National Express.
He claimed that not renationalising would have risked the collapse of the entire rail system.
The company warned it could no longer afford mounting losses on the world famous “Flying Scotsman” route, which will top £20 million in the first half of this year alone.
Rail experts today said that the failure of the East Coast franchise could cost the taxpayer up to £700 million in lost revenues.
They expect the Government to be unable to get from a new operator the £1.4 billion over 10 years which National Express bid to win the contract. Sources said the route was only likely to be worth half that figure.
But the company, which won the contract from GNER in 2007, is expected to lose only £72 million at most because it used a special financial instrument to buy the franchise.
Shadow transport secretary Theresa Villiers said: “Labour cut this deal but the taxpayer is left with the bill.”
Lord Adonis said that the Government would assume the losses until a new private sector operator could be found.
He has also ordered his department's lawyers to examine whether he can seize East Anglia and C2C, National Express's
two other franchises. He refused to rescue the transport group, saying: "I'm simply not prepared to bail out companies that are unable to fulfil their commitments."
The takeover raised questions over whether other rail companies could pull out of franchises, threatening the rail network, and whether ministers are signing deals which can be broken without heavy penalties.
In a move the company insisted was unrelated, National Express's chief executive Richard Bowker today resigned. He is to run a railway in the United Arab Emirates.
During talks last night over the future of the East Coast franchise, National Express offered an 11th-hour £100 million package to walk away from its contractual liabilities with no fault, government sources said.
However, Lord Adonis rejected the offer. "If I had agreed to that, the rail franchising system as it now exists and is broadly working successfully would have collapsed," he said.
"I would have had a queue around the block from other train companies who are also facing difficult trading conditions at the moment, for similar arrangements."
Ministers now face the hugely difficult task of re-auctioning the franchise, which has six years left to run, in the worst recession since the Thirties.
The company's new chief operating officer, Ray O'Toole, accused the Transport Secretary of "jumping the gun" by making the renationalisation announcement.
Asked if it was possible the company could still be running the line next year, he said: "Yes. if the economic downturn does start to recover in the second half of the year and we see things a lot better... we will continue to run it." Lord Adonis was stunned by the comments, describing them as "remarkable".
Furious ministers are now considering whether National Express should be allowed to carry on running its two other franchises after its "unacceptable" behaviour.
Casting doubt on the viability of East Anglia, which includes the Stansted Express, and C2C, which operates trains to Tilbury and Southend, Lord Adonis said: "We do have powers to cross-default and we will be considering whether or not to exercise those power."
He also made it clear that National Express was unlikely to win another rail franchise. "It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging," he said.
Ms Villiers said: "This Government has used the franchising process to push the train operators to make wildly optimistic bids which has meant squeezing passengers for higher and higher fares. Now the chickens are coming home to roost."
Like other private operators, National Express had built-in massively over-optimistic forecasts for 9 to 10 per cent passenger revenue growth when it bid for the franchise.
It was to pay the taxpayer £82.66 million this financial year, rising to £125.39 million next year and a peak of £311.27 million by the end of the franchise period in 2015. However in a trading statement today National Express said revenues grew by only one per cent in the first half of the year "with fewer passenger journeys and lower yield growth due to significant down trading from full and first class fares."
Staff will transfer to the new public body running the East Coast as part of an "orderly" handover from National Express this year.
Reader views (16)
Try talking to a group of friends and ask when they last took a rail journey, where do these figures come from?
- Wills, Soton
As a regular traveller who occasionally took advantage of advantageous first class fares, I was eventually forced to travel standard class, as they whittled away at the so called benefits on offer to premium fare travellers. For example, an advance first class ticket to Leeds costing over forty pounds could not get me entry to the lounge, whereas a first class single to Finsbury park at six pounds could. So standard class is chock full and first class is empty. Plenty of people would gladly pay a bit more for space and a guaranteed meal but National Express, for some reason have failed to grasp the logic, preferring their "less is more" model. Ho hum. Serves them right for being unable to manage their way out of a paper bag.
- Isabel White, London
Privatising the railways worked well then.
The countless consultants that showed the way to an efficient economical private railway network need to return their fees pretty sharpish.
- Mr Pastry, Brisbane
The hypocrisy of shadow transport secretary Theresa Villiers is mindblowing. It was the Conservatives who were behind this expensive mess of their botched rail privatisation.
- Paul, UK
Why is this wasteful government bailing out all these PRIVATE companies. Surely they could lower taxes instead for the working man to get us out of their depression instead?!?? There is no money left Crash Gordon!
- Jacqueline, Hampstead, London
National Express East Coast won't be missed by me.
They advertised cheap fares but you could never find them when you wanted them.
I make occasional trips to Leeds and York and generally have to pay over £50 return, even with a few weeks notice. When GNER operated the franchise, I usually paid under £30.
- Andrew, London W1
Make every one pay for public transport over the tax give them all free tickets if they want to drive cars then let them do it but tax them up to the hilt that way we would cut down on car traffick as well , which no one can afford not to do!
- Mick, London England
Shadow transport secretary Theresa Villiers said: “Labour cut this deal but the taxpayer is left with the bill.”
That's outrageous: surely that's what Tories are for? They always used to be.
- Mdj E10, london uk
So the rail companies are blaming falling passenger numbers
on the economy? Nothing to do with the huge costs of a ticket,
late trains and not even being able to get a seat! Who wouldn't
find a different way to travel????
- Darren, Ipswich UK
For the benefit of the ignorant:-
Passengers clocked up 30.1 billion miles on UK railways in 2007, surpassing the previous record year of 1946, according to the Association of Train Operating Companies (ATOC). For almost 80 years, from 1919 to 1995, rail travel stayed around 20 billion passenger miles each year.
Privatisation is wonderful!
- W R Stevenson, London SE26
With Stagecoach having bid a very high price for South West Trains and also having so far failed to renegotiate the franchise, perhaps the DfT will hopefully re-nationalise that too.
- Rodders, Feltham SWTland
It isn't just National Express that can't afford the losses, the tax payer can't afford them either. If the railway can't run profitably it shouldn't run at all.
- Malcolm Cupis, Bridgeyate, England
Sounds like a number plucked from the air. It cost nothing if done correctly or do we have another Sir fred sitting in the wings with the winning ticket again
- Jerry, Chiswick
Oooops!
A billion here, a billion there. Pretty soon we are talking about some real money!
- W R Stevenson, London SE26
The privatisation of the railways has been a nightmare from the outset. It has cost the taxpayer a fortune - generally provided a dreadful passenger service at heavily inflated prices, using subsidies from the taxpayer whilst making the shareholders and the Board of Directors a lot of money...something we have the Tories to thank for!
- Andy, london
Has anyone noticed that the more government grows, the less money there is in people's bank accounts?
Well, except for peers and MPs and such..
- Trunk, US
