Branson promises big savings in East Coast rail franchise bid

Sir Richard Branson pledged yesterday to deliver "substantial savings" for the taxpayer if Virgin Trains wins the contest to take over the East Coast mainline, one of the country's premier rail routes.

Speaking as bids were formally submitted for the franchise, which is held by Great North Eastern Railways (GNER), a subsidiary of Sea Containers, Sir Richard said that Virgin would recreate the old intercity network between London and Scotland if its bid succeeds. Virgin is bidding in partnership with Stagecoach through a joint venture called InterCity Railways.

Virgin already operates the West Coast mainline to Scotland and Cross Country Trains and Sir Richard said there would be big cost savings to be made by combining those with the East Coast route from London to Edinburgh.

The route is used by 15 million passengers a year and generates income of about £400m. GNER pays a premium of £30m a year to the Government for the right to operate the franchise and makes an annual profit of £30m to £40m.

However, when the new franchise is awarded the premium payment will rise sharply and track access charges paid to Network Rail for enhancement work to the line will also rise.

Sir Richard said: "In the current climate of belt tightening one of the Government's key criteria is who can deliver the most cost efficient railway."

Apart from Virgin and GNER there are two other bidders for the East Coast route - First Group and a partnership between Danish State Railways and the freight operator DWS.

The Strategic Rail Authority (SRA) aims to award a new 10-year franchise by the end of February with the successful bidder taking over from May.

The Virgin bid is likely to be referred to the Competition Commission for a three-month inquiry because of the monopoly it would give the company over rail services to Scotland.

However, Sir Richard said he did not believe there were any genuine competition concerns because rail accounted for only 6 per cent of the entire market and the real rivalry was with the car and airlines.

He said that if Virgin was successful the East Coast route would be the last franchise it bid for. There had been speculation that it would tender for the Great Western route, which operates from Paddington to the West Country, when it comes up for renewal in two years' time.

The rival bidders would make no comment on the contents of their bids or any potential benefits to customers. Industry insiders claimed that the SRA had requested in writing that no external discussion of bids take place.