UK's East Coast rail renationalized as privatization fight continues

Transport Secretary Chris Grayling told MPs he would terminate the contract with Virgin Trains East Coast from the end of next month

"Shadow transport secretary Andy McDonald said Mr Grayling had "gifted" Stagecoach and Virgin a "£2 billion bailout" after they failed on the main line, adding: "And he has the audacity to come to that despatch box and say it's not reasonable to remove or place conditions on their passport. It will be run as a wing of the Department for Transport under the leadership of the consultants Arup for up to two years.

"We believe our plans offered a positive, value-for-money way forward for passengers, taxpayers and local communities, ensuring the continuation of the exciting transformation already underway on East Coast and a smooth transition to the Government's new East Coast Partnership", Stagecoach Chief Executive Martin Griffiths said.

The services will be taken into public control three years after Virgin East Coast began operating and trains will now temporarily be run by the Department for Transport (DfT) through an operator of last resort (OLR).

"The route has its challenges but it is not a failing railway", the minister said, adding that Perth, Scotland-based Stagecoach and Virgin, owned by billionaire Richard Branson, "got their bid wrong and are now paying the price".

LNER will have a new board and an independent chairman, and in a departure from past practice will feature representatives of both the train operating team and state-backed track owner Network Rail Ltd., Grayling said.

The government said in February that Stagecoach had overbid for the contract, meaning that its profits were below forecast, resulting in a financial covenant breach, and costing it 200 million pounds.

But while lessons will be learnt from yet another franchise failure, Grayling, citing the 2013 Brown Review, said that "in an effective railway industry, franchises can occasionally fail".

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This is the third time a franchise on the East Coast Main Line has failed.

He told the Commons that Stagecoach and Virgin have lost nearly £200m, but there had not been a loss to taxpayers "at this time".

But whether it will help to make the line viable for the new operator is open to question.

Today's announcement is not the first time that Britain's flagship line, which stretches 393 miles from London to Edinburgh via Peterborough, York and Newcastle, has been back in government hands.

Grayling announced in November that the East Coast franchise would be terminated three years early in 2020, allowing the operators to avoid up to £2bn in payments until 2023.

LNER will take over the running of the line from June 24.

After looking into problems with the service, Mr Grayling said he was advised "that there is no suggestion of either malpractice or malicious intent in what has happened".

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