Rail 632: Was National Express collapse inevitable?


Superficially, the demise of the National Express East Coast franchise has been a fairly straightforward story. Company overbids, starts losing money, asks for more, gets turned down and walks away. An everyday story of railway folk.

 Except it isn’t that simple. At every stage, there have been political decisions that have determined the outcome of this saga and which will have longer term repercussions for the industry. And there are a lot of curious aspects of this affair which need explaining.

 Let’s start with the initial breakdown of negotiations. The Department had to be seen to be holding firm given its stance about not renegotiating franchises. Yet, on a couple of other franchises – Great Western and East Anglia – new deals were recently negotiated which involved extra ‘investment’ and changes to the franchise payment profile. In the case of East Anglia, this involved the incorporation of 186  new and cascaded coaches into the franchise, which, of course, involved extra leasing costs, making the precise costs of the deal very difficult to analyse. On Great Western, the cap and collar scheme – which limits the liability of the company – were brought forward because of a lack of clarity over the precise nature of the previous contractual terms.

 Therefore it may well have been feasible for the Department to have offered Richard Bowker, the then head of National Express, a way out of the hole he had dug so adeptly for himself. It would have been difficult because of the risk that it would open the floodgates to other applicants, but there were no insuperable difficulties.

 However, once the door was shut on National Express, the next issue was over cross default. There is no doubt from the strong words that Lord Adonis has repeatedly used about National Express that he would like to take back its other two franchises. In Parliament – and in an interview I conducted with him for a BBC Inside Out programme recently – he made very clear that he found it unacceptable that National Express should be able to continue making profits on its other two franchises after having defaulted on East Coast. However, it is clear that his officials – before his time, of course – allowed NEx to use a subsidiary for the franchise which meant that cross default would always be a difficult option to pursue. Adonis is clearly infuriated by this but NEx is very confident that he will not be allowed to impose cross default – which actually, may get him off the hook as trying to find alternative franchisees may well have proved difficult.

 Which brings us neatly to the core issue, the attitude of the Labour government to franchising. There has been very contradictory messages. On the one hand, Adonis has tried to make clear that this is a temporary renationalisation and that it will definitely be ended after two years. On the other, there is a very different feel to this franchise takeover than on the last occasion a franchise was in public ownership when the SRA finally lost patience with Connex SouthEastern. Then, it was a muted affair, with a new team being quietly installed and allowed to run it for the minimum amount of time that it took to organise the refranchising.

 Not this time. First, there is the commitment that East Coast will be in public hands for two years. Then there is the appointment of a high profile railway manager, Elaine Holt to run it and the immediate rebranding exercise with a sensible new name (which suggests that all franchise should have a generic name which the operator would have to use, obviating the kind of chaos which the same Ms Holt created on First Capital Connect where she insisted on rebranding the Thameslink trains, much to the confusion of passengers).

 Most notable, though, was the fuss made over the takeover. We had press releases, Lord Andrew Adonis giving interviews and even a special train (with, according to a railway manager I spoke to at the station, another ghost one four minutes behind to pick up the minister and his entourage if anything went wrong). This was canny political stuff, playing to supporters of renationalisation but yet trying to keep the industry on board by saying that there were no plans to keep it in the public sector permanently.

 This is where it gets interesting, though. When, at a chance meeting, I questioned Adonis about why the government was not holding on to the franchise permanently, he answered that his legal advice was that it could be only kept in the public sector for a maximum of two years but after that ‘it would be open to legal challenge’. So I asked for chapter and verse on this since, having followed the privatisation saga since 1993, I recollected that during the passage of the legislation, the Tories had conceded, in an amendment tabled by a former Conservative minister, Lord Peyton, that British Rail would have the right to bid for franchises in order possible to keep some in the public sector. In fact, the then franchising director, Roger Salmon, got round that by immediately imposing a ban on British Rail from bidding for the early franchises, but I had not realised that this aspect of the legislation had been rescinded.

 Moreover, Adonis’s position had been set out in a response to the report by the Transport Select Committee on franchising which said: ‘It is not within the Secretary of State’s gift to retain the franchise in public ownership without a change in legislation.’ This suggests that it is now impossible for a franchise to be held permanently in the public sector.

 However, none of the numerous responses from the Department for Transport managed to give any evidence to the effect that the government could no longer hold on permanently to a franchise. The press office kept on referring me to sections 23 and 25 of the original act, and at one point sent me pages of incomprehensible and irrelevant amendments. However, when I sent this to no fewer than two people expert in the law, they both agreed with me that the DfT had provided nothing to back up its evidence to the select committee. Section 24, not mentioned by the press office, specifically says that parts of the railway do not need to be designated for franchising and that is at the discretion of the Secretary of State.

 Therefore the Department seem to be making this up as it is going along. I am not, here, debating the merits or otherwise of the franchising system, but merely highlighting Labour’s dishonesty on this issue. If Labour politicians think, as clearly most do, that running the railways privately is the best way to do it, then why don’t they have the courage to say that and defend their position rather than hiding behind legal opinions and interpretations of obscure legislation which are open to question. Right from the days when Tony Blair promised a return to a publicly owned, publicly accountable, a promise he never remotely intended to keep, Labour has refused to come clean on its policy. I remember Alistair Darling dishonestly saying it would cost £20bn to renationalise the railways in response to a union motion at the Labour party conference in 2005 that merely said take back the franchises when they ended, a proposal that would not cost any money.

 Lord Adonis seems to have been misled by advisers who have told him that the government could only run the franchise for two years before a legal challenge (from whom?) is likely. If Labour’s position is that we should never return to any nationalised operations, then that should be made clear (and so should, of course, the fact that actually we have a renationalised infrastructure provider, Network Rail which ministers pretend is a private company).  Given that Labour’s hold on office is tenuous and that the party is unlikely to be in power after May, all this can be seen as irrelevant. It is not for two reasons. First, many in the private sector would be reassured that Labour has finally abandoned any notion of renationalising the railways. And secondly, those who support the idea of recreating British Rail would make sure that they did not vote for Labour.

 Visions that the renationalisation of the East Coast would bring about an instant change in its culture were punctured rather quickly. I had travelled up north with Lord Adonis on the inaugural press train, and then taken the opportunity to visit my daughter in Hull, returning on the last train of the day from Doncaster. I had a special rather ersatz looking ticket given to me by the press office and showed that when the guard finally came round to collect tickets at around Finsbury Park.

 ‘That’s not valid sorry sir’, he said. I then produced my specially typed letter from the press office: ‘That’s just an email’, he said ‘anyone could print that off.’

 My explanations about it being a press trip fell on deaf ears and he suggested I get my credit card out and pay. No way, I said, you will have to issue me with a notice and he did. But when he asked for my address, I gave him my card and he said ‘ah, anyone could print that off, do you have proper ID,’ and when I demurred, added: ‘I’m not being difficult?’ I stayed cool – with effort – and merely said, ‘oh yes you are’ and showed him my Freedom Pass. ‘We don’t accept those’, he said… I gave up speaking to him and simply pocketed the notice, knowing the press office would be mortified. Which they were.

 It was a rather salutary return to a nationalised railway then, but as the Virgin story outlined in the last issue (and now resolved as the accompanying article shows) these things can happen in both public and private sectors – in essence, customer service on the railways is all down to the individual staff and their training. Hopefully both East Coast and Virgin will be running a few lessons in customer relations.




Virgin Victory


I have won my little fight with Virgin whose guard made me buy an extra ticket because I could not extract my previously purchased one from the ticket machine. As I mentioned in my last column, I had been given the wrong code number by a travel agent and did not have time before getting the train to find the right one.

 While the ticket inspector (who was of ‘the customer is always wrong’ school) had promised I could get fully reimbursed, Virgin’s first response addressed to an I Olmar (I have terrible handwriting) was tough luck, we are keeping your money even though you have paid for the journey twice and we know that. However, the second response, addressed to C Wolmar, was we were right but here is your £69 back because we recognise that this was a special case. So victory, but I do wonder whether the name change prompted the change in attitude? Sadly, we will never know.

Scroll to Top