Rail franchise process to be changed after east coast battle

A key change in the process of awarding rail franchises is to be introduced to avoid the kind of high-profile legal battle that has erupted over the East Coast Main Line.

Ministers are to insist that no licences are to be awarded by the Government until access to the route in question has been established, the Office of Rail Regulation (ORR) said.

Great North Eastern Railways is taking the ORR to court for allowing a competitor access to its east coast route a year after it was awarded the franchise and will see the change as an acknowledgement that the process was critically flawed.

The company is challenging the decision to grant Grand Central Railway a licence to run services from Sunderland to London instead of allowing GNER to run more trains between the capital and Leeds. The Rail Regulator is being accused of breaching European rules on state aid and distorting competition.

The ORR conceded yesterday that "on reflection" the franchise bidding process should have taken place after the decision on access. Chris Bolt, the ORR chairman, said there would be "a more sensible way of doing things in future". There was no question of setting access rights "in stone" but new franchisees should know how much competition there would be in the foreseeable future.

It is understood ministers were furious with the ORR's decision because it called into question GNER's ability to pay £1.3bn to the Exchequer over the next 10 years. But senior ORR officials insisted that Alistair Darling and Douglas Alexander, his successor as Transport Secretary, both agreed that the regulator should maintain its independence from the Government.

Bill Emery, the chief executive of the ORR, said it would "vigorously defend" its strategy. He warned Network Rail directors that they would have to do a "lot more" to earn their bonuses next year. Board members received £1m in extra payments despite a five-fold increase in losses last year to £232m. John Armitt, the chief executive, received a 30 per cent increase in bonus payments.