Did 'brutal' cuts cause West Coast rail fiasco?

Whitehall insiders claim the Coalition's own austerity drive could have landed the taxpayer with a £100m bill. Oliver Wright reports

Virgin Trains is expected to be given an extension to its West Coast Main Line franchise (EPA)

More than 30 senior civil servants in the Department for Transport, including some with direct responsibility for franchising, were axed in the run-up to the West Coast Main Line fiasco, The Independent has learnt.

Documents show that dozens of directors in the department were "eliminated" as part of an aggressive cost-cutting programme, while another 400 more junior posts were closed.

Insiders believe that the speed and scale of the staff reductions – alongside cuts in financial consultancy spending and the introduction of a new, "fiendishly complicated" 13-year franchise agreement – led to the mistakes, which are set to cost the taxpayer more than £100m. All three areas are to form part of the department's inquiry into what went wrong. Patrick McLoughlin, the Transport Secretary, will update Parliament today on the investigations into the fiasco and announce details of what will happen to the West Coast franchise after 9 December, when Virgin's contract officially runs out.

Senior department officials have been in discussions with Virgin about giving the company a temporary extension to run the line while the franchise process is rerun and two inquiries establish what went wrong. He is likely to confirm this extension today. The inquiries, whose terms of reference are also expected to be published today, will focus their attention on what Mr McLoughlin has described as "a number of serious mistakes" that were made in the franchising process.

But they are also expected to examine the wider problems in the department, including staff and consultancy cuts. Among the posts abolished in the restructuring programme was the Director of Procurement – whose role was to oversee the franchise agreements. The directors of Rail Strategy and Rail Contracts, both of which would have had a role in the process, were also axed.

Two other senior posts which dealt with finance were lost in the cull, which saw many responsibilities merged and teams shrunk. Hundreds more junior staff lost their jobs.

Kate Mingay, the most senior civil servant suspended for her role in the franchise decision, had previously been head of Corporate Finance in the department but as a result of the restructuring was given additional responsibilities for rail contracts, procurement and commercial services. At the same time, Department for Transport board minutes from 2010 show that senior officials believed they could have some "quick wins" by cutting consultancy spending.

However, they admitted that other cuts in external support would have "some inevitable implications on prioritisation of expert support".

In the case of the West Coast Main Line, this is thought to have included not hiring external financial consultants to do an external audit of the department's assumptions and calculations in awarding the franchise.

It is understood to be these problems in financial modelling that led to the scrapping of the decision to hand the franchise to FirstGroup ahead of Virgin Trains. One source, with extensive knowledge of the department, told The Independent: "We always thought the cuts would mean something had to give. We didn't know it would be this bad."

Another said: "The job cuts at the Department for Transport were faster and more brutal than pretty much anywhere else. They have suggested that it was all been successfully achieved. But with what we know now, you would have to question that."

The Independent understands that the staff cuts and restructuring will form part of the inquiry being carried out by the Centrica chief executive, Sam Laidlaw, and the former strategy chairman at PricewaterhouseCoopers, Ed Smith. Next month, the think tank Institute for Government is due to publish a report on the effect of the restructuring on Whitehall departments. It looks in detail at the Department for Transport, which made a decision to move faster than others in cutting staff.

Louise Ellman, who chairs the House of Commons Transport Select Committee, said her committee would want to investigate whether the department had a capability to deal with the franchise bids, which were said to be so large that the paperwork needed to be transported in vans.

"Cost-cutting is one of the areas of concern that we have," she said. "We will be looking to see how much pressure this put on the people who had responsibility for the franchising process."

Stephen Joseph, of the Campaign for Better Transport, added: "What we have heard is that the Government completely changed the nature of the franchise, cut the number of civil servants by one third and then would not allow them to employ external auditors. None of this has been passenger focused, it has all been about the bottom line."

Labour MP Maria Eagle, the shadow Transport Secretary, said: "It's increasingly evident that ministerial incompetence caused this rail franchise fiasco. It will add insult to injury if £40m and rising of taxpayers' money has gone down the drain because of short-sighted short cuts made by ministers, designed to save money but ending up costing vastly more. This is yet another reason why we need a genuinely independent inquiry."

From cuts to crash? the story of the West Coast rail fiasco

October 2010: A spending review sets out plans to save more than £300m a year from the Department for Transport's budget by 2012.

November/December 2010: Redundancy plan results in merging of responsibilities among staff.

November 2010: Decision to make cuts in consultants goes ahead despite fears of impact on DfT resourcing.

2011: Restructuring plans rolled out with further redundancies among more junior civil servants. Government says central department will lose 480 staff.

May 2011: Government accepts McNulty report recommending a new rail-franchising system. Draft Invitation to Tender for West Coast franchise shortlists Richard Branson's Virgin Rail, Abellio, FirstGroup and SNCF/Keolis.

May-December 2011: Detailed plans for the new franchise are drawn up by Department officials, and financial models by which the bids will be assessed are devised.

January 2012: Final bids are received and assessed by the Department.

August 2012: Justine Greening announces she intends to award the West Coast franchise to FirstGroup. Virgin demands a judicial review into the decision.

October 2012: The DfT announces the decision to award the West Coast franchise to FirstGroup has been scrapped following the discovery of flaws in the procurement process. The Transport Secretary, Patrick McLoughlin, orders two independent reviews into the matter.