National Audit Office to investigate East Coast rail ‘bailout’

Watchdog to look at decision to allow Virgin and Stagecoach to hand back franchise early

Campaigners protest in King’s Cross station, London against the decision to terminate the East Coast franchise early.






Campaigners protest in King’s Cross station, London against the decision to terminate the East Coast franchise early.
Photograph: Wiktor Szymanowic/Barcroft Images

A controversial decision to allow two companies to hand back a rail franchise three years early is to be investigated by Britain’s public spending watchdog.

Chris Grayling, the transport secretary, was accused of effectively bailing out Stagecoach and Virgin’s joint venture Virgin Trains East Coast by allowing them to cut short their deal to run trains on the East Coast mainline. The termination of the franchise came after projected growth in passengers failed to materialise.

The decision means that the companies were freed from paying around £1.5bn in premiums to the Treasury, though some of the money will be recouped when a new operator is put in place. Virgin and Stagecoach complained that promised upgrades to the line had been delayed.

The National Audit Office (NAO) has announced it has launched an official investigation of the way the Department for Transport (DfT) has handled the franchise. Industry insiders said that crucial delays had meant ministers were left with no choice but to allow the companies to give up managing the line in 2020, three years early.

The DfT has insisted that taxpayers will not be facing any additional costs as a result of the decision. However, any criticism from the NAO will be another blow to Grayling, who has also faced questions over his decision to hand contracts to a consortium that included the doomed construction giant Carillion after serious problems emerged with its viability. Carillion has since folded.

Andrew Adonis, the former Labour transport secretary, told the Observer at the end of last year that Grayling should have faced the sack for his handling of the East Coast mainline. However, Grayling kept his job in Theresa May’s recent reshuffle.

The NAO is expected to report its findings in the spring. It said: “We expect to examine the department’s management of the franchise to date and the implications of its plans for the new ‘partnership’ [to run the line after 2020].”

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