East Coast Rail’s Problematic Return to Market

All major rail routes from London to Scotland are now operated by the same companies.

Earlier this week, the East Coast rail franchise that links London to Inverness via key cities such as Doncaster, York, Edinburgh and Glasgow was handed back to the private sector. Given the past performance of companies operating the franchise, the handover has not been without controversy.

The first operator, GNER, owned by Sea Containers, paid £1.3 billion to run the franchise for ten years. This was a third higher than rivals FirstGroup, Virgin Rail and a joint venture between Denmark’s DSB Railways and freight operator EWS had offered. It also worked out at significantly more than the £22 million they had been paying in previous years. A year later, the government took away the franchise when GNER faced financial difficulties, including the bankruptcy of its parent company.

Then in 2007, National Express won the contract. They outbid rivals Arriva, First and Virgin Rail and promised to pay a £1.4 billion premium to the Department for Transport over seven years.

But just two years later, National Express announced it was pursuing talks with the government for possible financial assistance in operating the franchise. Little came of the talks and National Express said it would default on the franchise before the end of 2009.

The government renationalized the franchise, intending to return it to market by 2013. This was later pushed back to February 2015.

During the last six years, the railway has returned some £1 billion to the Treasury, increased passenger satisfaction and won numerous awards and accolades for performance. Passengers and politicians have started taking seriously again the idea of rail nationalization, including many in the opposition Labour Party.

This hasn’t led to a change in policy so far. The East Coast Main Line is now operated by Richard Branson’s Virgin and the Scotland-based Stagecoach Group.

Which raises another question. Privatization was meant to increase competition in British rail. Yet the owners of Virgin Trains East Coast also operate the West Coast Main Line, the Midland Main Line and the South Western Main Line, meaning all major rail routes from London to Scotland are now in the hands of the same people. That’s rather the opposite of competition!