Two more utility franchises cost taxpayers dear – very, very dear


VIRGIN EAST COAST

The East Coast rail franchise will be terminated three years early, avoiding the embarrassment of another private firm handing back the keys to the government but potentially forfeiting hundreds of millions in premiums due to the Treasury.

Under a rail strategy announced by the transport secretary, Chris Grayling, a new partnership model will replace the franchise contract of Virgin Trains East Coast (Vtec).

The train operator, a joint venture led by Stagecoach with Sir Richard Branson’s Virgin Group, had pledged to pay £3.3bn to run the service until 2023 when it was reprivatised in 2015 after six years in public hands.

Instead, Vtec is likely to pay a fraction of that sum, with the bulk of payments due in the final years of the franchise.

The firm signalled that it also expects its payments for the next three years to be cut. In the first full year of operation, it paid £204m. Shares in Stagecoach jumped 12% on the news.

Andy MacDonald, the shadow transport secretary, told the Commons that the strategy announcement was “a total smokescreen”. He said: “The real issue is that the East Coast franchise has failed again and the taxpayer will bail it out.”

Pointing to the share price rise, he said: “Markets don’t lie. The secretary of state has let Stagecoach off the hook for hundreds of millions of pounds. He’s tough on everyone except the private sector.”

GREAT WESTERN RAILWAY

More questions were raised by a separate decision to give First Group another contract to run Great Western Railway (GWR) up to 2024 after it was controversially allowed to continue running the service, despite dodging £800m due to the government in an original contract.

The franchise, which runs commuter services into London Paddington and long-distance trains to Wales and the south-west, is likely to be broken up, under plans published by the DfT. The biggest commuter franchise, Govia, which operates the Thameslink, Great Northern and troubled Southern services, will also be broken up.

DfT will extend First’s current GWR franchise contract by another year, to April 2020, and then give a direct award for two more years, with an option to double the tenure.

First has run the trains during the botched upgrade of the route by Network Rail, which has seen costs overrun to almost treble the original budget and stretches of the electrification project abandoned to save money.”

https://www.theguardian.com/uk-news/2017/nov/29/east-coast-rail-franchise-terminated-three-years-early-virgin-trains

One thought on “Two more utility franchises cost taxpayers dear – very, very dear

  1. To put this in its simplest terms, the government is giving between £2bn and £3bn (that it is owed) to an offshore billionaire resident in a tax-haven (Branson) and spinning it as “a rail strategy”.

    Personally I would much rather that Branson’s company pays the money in the contract rather than being let off – our public services like the NHS are desperate for additional funding. If he claims that VTEC cannot afford it, then we need to look at why the government accepted a bid which cannot be paid for and whether Branson has taken any dividends from VTEC since it won the franchise. And if it turns out that he has taken dividends, claiming poverty and refusing to cough up what he owes, perhaps he should follow Philip Green and be stripped of his knighthood.

    (In the interests of balance, Virgin Atlantic is on record as saying that Branson has never made a personal donation to the Conservative Party – though personally I think this distinction is a bit moot because Branson is the controlling force of his companies and donations by his companies are effectively paid from dividends that would otherwise accrue to him. So you can draw your own conclusion as to whether the Conservative Party are being excessively generous to one of their “friends” at tax-payer expense.)

    P.S. See also https://www.theguardian.com/commentisfree/2013/jun/24/richard-branson-defence-virgin-trains which predicted this eventuality 4 years ago. If the Guardian can foresee this, why can’t the government? Rose tinted spectacles provided by Virgin Eyecare perhaps?

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