Sir Richard Branson's Virgin Rail is to receive £1.4bn of taxpayers' money in return for operating services on the West Coast Main Line between London and Glasgow.
The massive public subsidy over the next five years stands in stark contrast to the £1.3bn which Great North Eastern Railways is struggling to pay the Exchequer for being re-awarded the franchise to run trains between London and Edinburgh.
Under a plan drawn up at the time of privatisation in 1996, Sir Richard's rail interests, which include the sprawling CrossCountry franchise, should have been making contributions to the Treasury, rather than the other way round. Virgin has received well more than £1.5bn from the state since 2002-03 in subsidy and in compensation because of Railtrack's failure to upgrade the west coast line.
Managers at Virgin Rail, which is 51 per cent owned by Virgin Group and 49 per cent by Stagecoach, pointed out that the company would take the "revenue risk" associated with a franchise, but they will also have the opportunity to attract more customers.
Virgin hopes to increase the number of passenger journeys from 20 million a year at the moment to more than 30 million by the end of the franchise period.
The agreement replaces a "cost-plus" management contract with the Government dating from 2002 when the project to refurbish the west coast line fell apart under the now defunct Railtrack and Virgin was unable to fulfil its obligations under its franchise deal.
Gerry Doherty, general secretary of the rail union TSSA, said: "Father Christmas has come early for Sir Rich. I am completely baffled why the British taxpayer is playing Santa Claus to one of the country's richest men. I would much rather see fares cut."
A Department for Transport (DfT) spokesperson said the franchise had not been due to return a premium to the Government until Railtrack honoured its contractual arrangements.
A spokesman for Virgin said the subsidy would not cover the £2.2bn in access charges over five years the company will pay to the infrastructure organisation Network Rail as a result of the £8.6bn cost of modernising the route. The access charges amounted to around £450m a year, while current revenue was just £500m, the spokesman said. "We have to pay our staff, pay for the trains and pay for power on top of the access charge," he said.
As part of the new franchise agreement, Virgin and the DfT said there would be major improvements to services after 2008. They would include a 50 per cent increase in frequency in London-Birmingham and London-Manchester services and a 30-minute reduction in London-Glasgow journey times.
Virgin said it was discussing with the DfT the feasibility of adding two extra cars to each of its 53 nine-car, high-speed, tilting Pendolino trains, which would provide a further 10 million seats to meet expected demand.Reuse content