Treasury aims to cash in on East Coast rail franchise

Click to follow
The Independent Online

The successful bidder for the lucrative East Coast main line rail franchise will be forced to pay up to five times more to the Treasury for the privilege of running the route, The Independent understands.

The successful bidder for the lucrative East Coast main line rail franchise will be forced to pay up to five times more to the Treasury for the privilege of running the route, The Independent understands.

The Government is insisting on a tough regime that will mean a massive cut in operational costs, together with a substantial increase in rail fares on the London-Edinburgh services.

While the incumbent Great North Eastern Railways (GNER) paid a little more than £20m last year into the Exchequer, the Strategic Rail Authority (SRA) has told bidders subventions should be up to £100m a year.

A source close to one of the bidders said the Treasury seemed to believe that "much more" could be extracted from the business. "The Government view is that it is quite a 'soft' franchise and that passenger numbers and income could be much higher."

The source pointed that it was one of the first franchises to be let after privatisation in 1996 because it was regarded as the most attractive to the private sector.

Management at the Sea Containers subsidiary, GNER, has been gathering support from passengers and MPs along the route for its campaign to retain the licence. At stake is the highly regarded restaurant service and the jobs of employees at GNER's York headquarters.

It is in competition with three rival bidders: a joint proposal from Virgin and Stagecoach; a bid from First Group and one from Danish State Railways which is advised by the freight group English, Welsh and Scottish. It is thought that Virgin and First Group would cut costs partly by concentrating their rail operations in one headquarters.

While it is understood that GNER is proposing increased investment in services to attract more passengers, at the other extreme First Group has suggested a cheap and cheerful "easyRail" approach reminiscent of the budget airline. More cynical industry analysts believe that under the direction of the Department for Transport, the SRA will opt for the bidder which promises most to the Treasury. Others believe that the Government will have to balance bidders' promises with "deliverability" and that companies which promise huge returns for the Treasury are not taking an inevitable economic downturn into account.

The Treasury argues that taxpayers are in effect subsidising a minority of well-off business people who can take advantage of the facilities on GNER.

The SRA said the preferred bidder will be announced in February and the new operator will take over in May.

Comments