Crisis after £1.4bn East Coast rail franchise collapse

Jul 2 2009 by William Green, The Journal

BRITAIN faces a transport cash crisis after the £1.4bn East Coast rail franchise collapsed.

The Government’s transport budget could suffer a £700m hit following the failure of the franchise run by National Express since 2007.

Transport Secretary Lord Adonis insisted services would continue without disruption with “operational” staff moving to a new public company likely to take over from loss-making National Express later this year.

He has previously admitted such a move could cost taxpayers extra and wants to find another private operator from the end of 2010.

That is despite National Express following GNER in running services between the North East, London and Scotland.

National Express agreed to pay £1.4bn to the Government over the lifetime of the franchise, but was hit by stalling revenue growth amid the recession, while ministers rejected renegotiation.

Experts warned the Government may struggle to even get a £1bn deal with a new operator, blowing a hole in the Department for Transport’s (DfT) budget. The Prime Minister also this week refused to guarantee that regional transport schemes would be protected from expec finances back on track.

And Business Secretary Lord Mandelson said funding for the DfT would instead pay for affordable housing.

Last night transport expert Stephen Glaister, who has advised the Government, said travellers may not see any difference when the franchise is transferred to public ownership.

But he added the news was a “disaster” for taxpayers and the cash-strapped DfT, warning money would have to be moved from other vital projects. “The chances of suitable funding being available in the medium-term for any meaningful road projects – or indeed new rail services – must now be extremely slim,” added the director of the RAC Foundation.

Prof Glaister blasted the “flawed” franchise system, saying it allowed private companies to make bumper profits only to walk away in the bad times.

Rail industry expert Roger Ford, who writes for Modern Railways, said the Government would get “well under” £1bn for re-letting the East Coast franchise and warned other companies were getting “revenue support”. Berwick MP Sir Alan Beith said: “There is certainly a problem for the transport budget. Quite unrealistic expectations were built into the franchise because GNER were so desperate to win the franchise.