Call for inquiry into collapse of rail deal

Spending watchdogs have been urged to investigate whether taxpayers' money was wasted in the collapse of the East Coast rail franchise.

GNER East Coast mainline train stands in Newcastle Central Station

Spending watchdogs have been urged to investigate whether taxpayers' money was wasted in the collapse of the East Coast rail franchise.

Shadow Transport Secretary Chris Grayling has written to the National Audit Office (NAO) asking for an investigation into the circumstances that led to the Government's deal with train operator GNER being torn up and replaced with a temporary contract until a new company is selected later this summer.

The Department for Transport (DfT) handed GNER a contract in 2005 to run trains between the region, London and Scotland for up to 10 years, only to see the deal fall apart last December after the company said it could not afford a £1.3bn premium it had agreed to pay.

At the time of the franchise's collapse, Transport Secretary Douglas Alexander said it had been made clear to rail companies with financial problems not to expect a bailout.

GNER said it would be unable to meet its payment obligations and renegotiation was unavailable. It said it had been "knocked sideways" by the July 2005 London bombings, higher electricity prices and a rival being allowed onto the East Coast route. In a letter to NAO chief Sir John Bourn, Mr Grayling said: "I am concerned that this episode has cost the taxpayer dearly and has resulted in a delay to promised service enhancements.

"Specifically, I have concerns that the taxpayer did not receive and is not receiving best value from the Department for Transport in this regard."

The shadow transport secretary wants the NAO to investigate how the DfT examined the viability of GNER's payments before awarding it the East Coast franchise.

Mr Grayling also asked for a probe into the cost of the collapse and retendering of the franchise to taxpayers, and how many projects to improve services had been delayed or cancelled because of the "unexpected" termination of GNER's old contract.

The cost to the public purse of GNER's current temporary contract with the Government is another area of concern for Mr Grayling, who has also queried whether a system that sought value rather than the highest bidder could have prevented the early termination of the company's old franchise. In light of the move, Tyne Bridge Labour MP David Clelland - a member of the East coast Rail Forum - said yesterday he was certain there had been no impropriety by the Government. However, he insisted lessons should be learned from the experience of GNER.

He said: "GNER clearly overbid, but the Government had no idea it couldn't manage their payments.

"I am quite sure the experiences of the GNER collapse in terms of the East Coast service will have taught everyone a lesson and this will be taken on board by all those involved. There were lessons to be learnt by the Government."

The Government-ordered competition to award a new franchise is entering its final phase, with rival operators Arriva Trains, National Express Group, First Group and a partnership of Virgin, Stagecoach and GNER submitting their bids to ministers this week .

A GNER spokeswoman yesterday declined to comment on the letter, insisting it was an issue for Mr Grayling and the Government.

But she said: "Under the management contract GNER has with the Depart for Transport, we have continued to deliver passenger benefits."

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