Virgin's Cross Country franchise ends early

Sir Richard Branson's hopes of keeping his nationwide rail franchise until 2012 were dashed yesterday as the Government announced it would be up for grabs in two years. As part of a reorganisation of the industry, the Virgin Rail Cross Country network will be expanded but re-let.

The Secretary of State for Transport, Alistair Darling, also revealed he was considering the transfer of some inner London suburban services run by Silverlink to the London Mayor Ken Livingstone's Transport for London.

Under the new franchise boundaries, the Central Trains network will be scrapped and redistributed to Cross Country and two new franchises covering the East and West Midlands. The expiry dates of the present Central Trains and Silverlink franchises - both run by the transport group National Express - will be extended to autumn 2007 to allow the details of the new franchise map to be worked out.

The new boundaries are aimed at aligning franchises with Network Rail's regional structure, as set out in the Future of Rail White Paper published in 2004.

The decision to curtail the Cross Country franchise - which is 51 per cent owned by Sir Richard and 49 per cent by Stagecoach - came after the failure of talks between the train company and the Department for Transport. The heavily subsidised network has been run on a "cost-plus" basis for the past two years.

Virgin had sought to change the arrangement back to an orthodox profit-making franchise to last until 2012 as envisaged at privatisation. But the Treasury said it was unable to come up with a sufficiently attractive package.

Mr Darling said the Cross Country cost-plus arrangement was "always temporary" and the Government wanted to put the franchise on a proper footing.

Virgin Trains has operated the sprawling Cross Country business, which covers the entire network including Aberdeen, Brighton and Penzance, since 1997. The company said it intended to bid for the new franchise - which will incorporate some Central Trains routes - pointing out that its punctuality figures had just hit a seven-year high. "We are confident of taking on all bidders," a spokesman said.

Chris Gibb, Virgin Cross Country's managing director, said the announcement confirmed a "remapping" process that had been discussed widely. "We have achieved so many improvements over recent years and will strive even harder to bring further benefits to customers," Mr Gibb said.

A Virgin Trains spokesman said the company had government assurances that its west coast main line franchise, which operates on a cost-plus basis, would not be put up for tender until it expired in 2012.

Mr Darling said yesterday's announcement was about the "sensible reorganisation of the railways" and not about making cuts to the network. "Cost control is essential and I think there will be changes," he said. "But we should have the confidence of making changes against the background of a growing railway, not a shrinking one."

Bob Crow, the general secretary of the RMT rail union, warned Mr Darling against using the changes to mask service cuts and station closures. Keith Norman, the leader of the train drivers' union Aslef, said the initiative was an indication that the Government accepted the inevitability of monopolies developing in the industry. "This underlines our contention that the railways are a natural monopoly and if you accept this, the logical conclusion is that it should be under public ownership," he said.

New look for railways

* The Central Trains network, which is operated by the transport group National Express, will be abolished and three new franchises will replace the present four across central England.

* An East Midlands franchise will be created.

A new West Midlands franchise will operate the west coast main line outer suburban services to and from London Euston, currently operated by Silverlink, together with regional and local services in the West Midlands.

* A new Cross Country franchise will be let in autumn 2007.

* The expiry dates of the current Central Trains and Silverlink franchises will be extended to autumn 2007.

* There will be an option to transfer the Liverpool to Nottingham service to the TransPennine Express franchise if this demonstrates "better value for money".

* Discussions are taking place on the possible transfer to Transport for London of the inner London suburban services, which are operated by Silverlink Metro.