Virgin Rail head claims department is being taken for a ride by rival’s ‘preposterous’ sum for lucrative west coast rail franchise
Sir Richard Branson has accused the government of failing to follow its own rules by accepting an “absolutely preposterous” bid from FirstGroup to run the west coast railway.
In a parliamentary showdown between the head of Virgin and rivals from British railways, Branson told the transport select committee inquiry that awarding the west coast main line franchise to FirstGroup was like “renting out your house to the one who offers to pay twice the rent in 10 years’ time [despite] being burnt three times already”.
However, Tim O’Toole, chief executive of FirstGroup, accused Virgin of peddling “outrageous” versions of history, and of making guesses about a bid they had not seen.
The government last month announced it had awarded FirstGroup the rights to the west coast main line, one of Britain’s most lucrative rail franchises.
However, Virgin applied for a judicial review hours before the signing of the contract on 28 August.
City analysts and the RMT union have joined Virgin in querying FirstGroup’s bid.
Branson, who has run the route since 1997, claims the sums mean FirstGroup will follow National Express and GNER in not seeing out the franchise commitments.
In a furious attack on the Department for Transport, Branson said officials had been taken for a ride by the bid: “They’ve thrown this enormous cheque at the end of the franchise and somehow got away with it.”
Branson said Virgin had spent £50m on four failed franchise bids, twice losing out on the east coast line when the winners eventually failed to honour their contracts.
He said: “At some point you have to draw a line. We’d much rather the DfT was open and transparent, and then we wouldn’t have to go to court.”
FirstGroup, the UK’s largest rail operator, bid a basic £5.5bn to run the line until 2026. The sum was £700m more than Virgin offered. With a likely extension and inflation, the difference rises to £1bn-£2bn.
Virgin’s lawsuit claims that the DfT’s procurement process did not correctly assess the risk of FirstGroup defaulting, with guarantees far below the premiums it would have to otherwise pay.
But O’Toole described Virgin’s allegations as “flat-out wrong” and “just another guess they have made about our bid”. Later he promised: “The rent is coming in regular instalments.”
He said the larger sums were due to compounding growing passenger numbers and revenues in the last years of the franchise, where Virgin was predicting flat growth. He said: “Even with a railway stuffed to the gills like Great Western you can achieve growth.”
He hit back at Virgin’s comparison with the previous east coast debacle, saying: “The most outrageous thing is the history Virgin presented. Virgin would have been crushed, it would have defaulted [had it won the franchise].”
He denied excessive risk in FirstGroup’s current bid, but said: “This will require a lot of hard work. There is always risk. We just think we will be able to handle it.”
It emerged in the hearing that the DfT had demanded a greater surety from FirstGroup, pushing up the bond from £50m and settling on £200m, although at one point FirstGroup had offered £15m more.
A Virgin spokesman said the DfT needed be “upfront about these last-minute, behind the scenes, negotiations with taxpayers’ money”.
The DfT said it was unable to confirm any negotiations which were confidential and the subject of legal proceedings.
A spokesman said: “The department was involved in active dialogue with all bidders about the details of their proposals.”
The department has said it would increase its focus on contingency planning in case Virgin’s legal action meant FirstGroup could not take over the franchise on 9 December.
One option was taking the line into state control in the interim. Directly Operated Railways, the government company now running the east coast line, was reported to be looking at the running of the line.
Branson reiterated his offer on Monday to continue to ing running run services for free pending the high court’s legal decision. But the DfT was not thought to be keen.
Speaking afterwards, O’Toole said he had met west coast railway staff and that FirstGroup was pressing ahead for the change of ownership on deadline. “The only fact you know is, no matter what happens Virgin is leaving on 9 December.”
David Cameron will pay a high price if he opts for the unfair and unpopular non-solution that Heathrow expansion represents
The prime minister believes we face a crisis over aviation capacity in London. As a result, he has put Heathrow’s third runway back into the mix. Given the “no ifs, no buts” pledge he made before the election, it’s a major leap. Combined with the removal of the well-respected transport secretary, Justine Greening, and the equally respected aviation minister, Theresa Villiers, both of whom resolutely defended the government’s stated opposition to Heathrow expansion, all this points to an imminent U-turn.
Why else would the government have announced (yet another) aviation review that will not report until the summer of 2015? After all, if we face a crisis of undercapacity, it is surely odd that the only policy we have in place is an absolute commitment to do nothing for three years. There is only one explanation: the government believes it can press on with a third runway, and without fronting up to the electorate.
This matters for countless reasons. First, political promises need to mean something. As William Hague has said, there’s no justification in U-turns unless the facts change significantly, which they have not. If there is a pre-election U-turn, my colleagues will struggle at the next election to persuade voters that their manifesto is worth the paper it’s written on.
I don’t actually believe we will see bulldozers this side of the election. That would represent an off-the-scale betrayal, and would be noted by voters everywhere. It would also be logistically difficult to pull off. But unless the government is clear with voters it will be assumed that it is wedded to a post-election green light.
A decision to expand would be the wrong decision, on every level. Despite the scaremongering, it remains a fact that Heathrow already has more flights to business destinations than any other airport in Europe. More passengers fly in and out of London than any other city in the world. We are well-connected, we have ample capacity, and we are starting from a position of strength. The problem is that we don’t use that capacity well. If we want to preserve Heathrow’s hub status, we need to stop clogging it up with point-to-point flights to places such as Cyprus and Greece, which between them account for 87 weekly flights, and contribute nothing to overall connectivity.
We also need to discourage operators guarding their slots by flying half-empty planes. Heathrow has terminal capacity for an extra 20 million passengers, and with fuller and, in places, bigger planes, we’d be able to accommodate many more. In addition, we need to encourage a shift from air to rail wherever possible. Every week, for example, there are more than 300 flights from Heathrow Brussels, Manchester, Newcastle and Paris. In time, a better high speed rail network will help.
These measures would relieve pressure on Heathrow, but by improving links to other airports, we can do more. For example, Stansted is massively underused, by nearly 50%, and with proper rail links to the City, it would be the natural place for business flights. There is no reason why we couldn’t facilitate a two-hub approach, with Heathrow catering (broadly speaking) for western-facing flights, and Stansted catering for eastern business flights.
It has been argued that these measures are inconvenient and complicated. But subjecting 2 million residents to aerial bombardment is far more inconvenient. And making room on London’s roads for an extra 25 million road passenger journeys to and from Heathrow is far more complicated.
Always on the look out for the quick answer, the government appears to have been seduced by vested interest. But it will pay a high price if it opts for the deeply unfair, and unpopular non-solution that Heathrow expansion represents.
Department for Transport set to sign £5.5bn west coast rail contract, as Virgin Trains considers last-ditch legal action
Sir Richard Branson’s hopes of clinging on to the west coast rail franchise are fading as the government prepares to formally strip Virgin Trains of the London-Glasgow route.
The Department for Transport has rejected Branson’s offer to run the franchise for free if it delays its decision to award the 14-year contract to FirstGroup. It is expected to sign the new £5.5bn deal as soon as Wednesday morning, although Virgin was still considering last-ditch legal action.
FirstGroup’s chief executive, Tim O’Toole, warned that any delay in awarding the contract would wreak havoc as the industry prepares to bid for a slew of high-profile routes, including the Great Western and east coast franchises.
“This is a huge piece of work that is in front of the industry and we have to get on with it,” O’Toole said. Delaying the west coast decision would “invite this kind of behaviour in other deals”.
He defended FirstGroup’s record as the operator of multiple franchises, including Scotrail and First Capital Connect. Responding to repeated warnings from Branson that FirstGroup had overbid, O’Toole said: “This company is going up against an organisation whose core competency is publicity and PR. And they would be a formidable opponent if that was the only criteria.”
Branson took to the radio and TV studios on Monday to urge David Cameron to intervene in the row and “get some sense” into the DfT. He said on BBC Radio 4′s Today programme: “The person that can really intervene to try to get some sense into the Department for Transport is the prime minister, and the prime minister is currently on holiday, the chancellor is on holiday and we would like things delayed by a month or so.
“If, as a result of that, it means that the handover is delayed, we would obviously be very happy to run it on a not-for-profit basis.” The DfT said it had no reason not to sign the agreement.
The Labour party called for the east coast mainline, which runs trains from London to Edinburgh, to remain in public hands. The shadow transport secretary, Maria Eagle, said Britain’s mainly privatised rail network would benefit from a “public sector comparator”.
Eagle told Progress magazine: “I think having a public sector comparator is actually tremendously important. I don’t really think that east coast as it currently runs has had enough of a chance to be that.”
The east coast mainline was returned to public control in 2009 by Lord Adonis, then transport secretary, after he stripped National Express East Coast of the franchise. The company defaulted on its contract after two years on the grounds that it could not afford the franchise payments.
In June, the government decided to launch a consultation to reopen the franchise, with the aim of returning it to the private sector by next year. Eagle said: “There is a very strong argument for not doing that and just letting east coast see what it can do and supporting it in doing that.”