Southeastern: Government takes over rail firm after £25m breach of franchise agreement

Train operator ‘breached the trust that is absolutely fundamental to the success of our railways’ – transport secretary, Grant Shapps

One of Southeastern’s high-speed Javelin trains at Ashford International station in Kent (Simon Calder)

The government is taking over the running of railway operator Southeastern after a £25m breach of its franchise agreement.

The network of trains between London and Kent will be run by the government’s “Operator of Last Resort” from 17 October.

It follows an investigation into the franchise company London & South Eastern Railway (LSER) which is said to show more than £25m of taxpayer money was not declared by the company over a seven-year spell.

A senior Tory MP has said that the Serious Fraud Office is involved.

LSER is a joint venture between the UK-based Go-Ahead Group (owning 65 per cent) and the French company Keolis (35 per cent).

At one point on Tuesday morning, shares in the Go-Ahead Group had fallen by over 20 per cent – wiping £90m off the company’s market capitalisation.

Go-Ahead Group was expected to announce its financial results this Thursday, 30 September, but that has now been postponed.

On its website, Southeastern said: “Our passengers will see no change in our day-to-day operations. All tickets will remain valid after transfer and new tickets can continue to be purchased in the usual way.”

The Department for Transport (DfT) said that an investigation “has identified evidence that since October 2014 LSER has not declared over £25m of historic taxpayer funding which should have been returned”. The sum has since been reclaimed, and the DfT statement said: “Further investigations are being conducted by the owning group into all related historic contract issues with LSER.

“Following these investigations, the government will consider further options for enforcement action, including statutory financial penalties under the Railways Act 1993.

“On the basis of the available evidence, we consider this to be a significant breach of the good faith obligation within the franchise agreement and will not be extending a further contract to LSER.

“The government believes it is essential that there is public trust in operators, who should prioritise the very best for passengers.”

The transport secretary, Grant Shapps, said: “There is clear, compelling and serious evidence that LSER have breached the trust that is absolutely fundamental to the success of our railways. When trust is broken, we will act decisively.

“The decision to take control of services makes unequivocally clear that we will not accept anything less from the private sector than a total commitment to their passengers and absolute transparency with taxpayer support.”

Huw Merriman MP, a season-ticket holder on Southeastern and chair of the Transport Select Committee, told BBC Today: “I understand the Serious Fraud Office will be involved.

“It won’t make any difference to me as a passenger. The same lovely staff will still drive us where we need to go. The trains will look the same but senior management’s being removed.”

Go-Ahead Group said in a statement: “Although the independent review is ongoing and the contracts concerned are highly complex, the Group acknowledges that errors have been made in relation to the franchise.

“The Group has repaid the £25m referred to in the DfT’s statement of this morning and will provide a detailed update on further liabilities in its full-year results.”

Elodie Brian, who has been Go-Ahead’s chief financial officer for the past three years, has resigned with immediate effect. Gordon Boyd has been appointed on an interim basis.

The general secretary of the RMT union, Mick Lynch, said: “For years RMT has said that the private railways in Britain have been run by a gang of spivs trousering hundreds of millions of pounds of taxpayers’ money with impunity while services were left to rot. Today’s announcement on Southeastern proves we were right all along.

“We do not believe for a moment that this scamming of the British people is restricted to Southeastern.

“There now needs to be a forensic examination of all the private rail contracts, with those caught cooking the books called to account.”

The government has set up a company called SE Trains Limited to run the operation as a wholly owned subsidiary of DfT OLR Holdings Limited – the government body that already runs LNER on the East Coast main line and the Northern Trains network.

Go-Ahead Group also runs the UK’s biggest rail franchise in terms of passenger numbers, GTR – which runs Southern, Thameslink and Great Northern trains to, from and through London.