Virgin train subsidy soars to £282m

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Taxpayer subsidies to Virgin Trains are increasing by 270 per cent this year because of delays in the £9bn modernisation of the flagship West Coast Main Line, it emerged yesterday.

Virgin had originally been due to make an £8.2m payment to the Government this year for the right to operate the London to Glasgow route and the Cross Country franchise. Instead, it will receive a £282m subsidy - up nearly three-fold from the £106m payment received last year.

The huge increase in taxpayers' support is designed to compensate Virgin Trains for the failure of Railtrack, now Network Rail, to complete the upgrade of the West Coast Line on time, which means its £800m fleet of Pendolino trains will not be able to run on full tilt until September next year.

Stagecoach, which owns 49 per cent of Virgin Trains, said it hoped to negotiate a new West Coast Line agreement with the Government's Strategic Rail Authority from 2004 onwards based on continued subsidies.

Stagecoach also said it had negotiated an increase in subsidies for its South West Trains franchise - the biggest commuter network in the country. Last year the SRA subsidised SWT to the tune of £35m. Rail industry sources said that, based on other renegotiated franchise deals, the level of subsidy is likely to have risen to at least £50m.

Details of the new agreement will be announced in the next fortnight and will include an amount to compensate Stagecoach for delays in introducing its new fleet of Desiro trains on SWT routes because of insufficient power supplies on the network.

Stagecoach said operating profits from the SWT franchise would fall from £38m last year to £30m this year and £25m next. This year's profits include a one-off compensation payment of £8.5m from the train builder Alstom.

Alstom is to cease making trains in the UK when its completes the Pendolino order. Brian Souter, chief executive of Stagecoach, said he was concerned at the loss of UK manufacturing capacity but the fact was that "train build quality here has been garbage".

Stagecoach made a pre-tax loss of £500m for the year after writing off £575m in Coach USA.