Branson's sprawling rail network faces break-up

The nationwide rail network run by Sir Richard Branson is expected to be broken up under confidential plans drawn up by the Government. A scheme to scrap the sprawling Virgin CrossCountry franchise means that passengers would no longer be able to travel from one end of the country to the other without changing trains.

Yesterday's news emerged as the Strategic Rail Authority (SRA) called an end to negotiations to extend the franchise until 2012. Sir Richard's company, which holds 51 per cent of the shares in the Virgin Rail Group, and Stagecoach, which holds the rest, hope to run the service for another 12 months.

The network, used by 16 million passengers a year, takes in more than 100 towns as far apart as Aberdeen and Penzance and, until recently, had been the worst performing franchise on the system.

However, a decision to scrap the licence would draw attention to the inability of Britain's railways to provide a truly national service because of decades of under investment.

It is thought the option of breaking up the system has been opposed by the SRA, but the organisation is to be abolished under the Government's recent rail review.

The franchise could go out to tender to be run by another company, but the Treasury is thought to be determined to break it up so that other operators such as Great North Eastern Railways, First Group and Central Trains would take over parts of it.

The plan to abolish the licence follows an inquiry into the operator by the Downing Street "delivery unit". The performance of the franchise has been hampered by the fact that it passes through territory run by more than a dozen other operators and has therefore been susceptible to problems which are beyond its control.

Virgin has been running the services with the help of state subsidies on the basis that the company receives return of one per cent above costs.

An SRA spokesman said that Virgin had submitted an offer to run the services until 2012 - the date when the franchise was originally supposed to expire. However, the proposals did not pass "the value-for-money test" and the SRA has ended negotiations. Both Virgin and Stagecoach said they were "surprised and disappointed" that the SRA had rejected their proposals.

The group claims to have transformed the franchise, replacing the elderly rolling stock fleet with 125mph trains at a cost of £390m and increasing passenger numbers by 40 per cent. "Punctuality has improved to its best levels since spring 1998, despite the infrastructure problems that have dogged the industry following Hatfield," said Chris Green, the group's chief executive.

"We are proud to have achieved the highest possible customer accolade last month when CrossCountry was voted the top performing long-distance train operator with 85 per cent customer satisfaction."