GOVERNMENT transport bosses missed out on £30m when they took back control of the East Coast Main Line from National Express, it has emerged.
A parliamentary select committee report has revealed the Department of Transport received a lesser sum than possible, taking £120m from the rail operator when it cancelled the contract in 2009.
Ministers turned down the £150m they could have received because they wanted to be free of a “no fault” clause in the higher payout.
But MPs sitting on the public accounts committee last night said the department made this gesture pointless by then publicly stating “that the termination would not be held against National Express in future bids”.
Since the changes, the line has been nationalised and is now run as East Coast trains.
National Express’s failure on the line brought into question the then Labour Government’s policy on franchising rail lines, a process often criticised by unions and passenger groups.
Gateshead MP Ian Mearns, who sits on the all-parliamentary rail in the North group, described the revelation as the latest proof that the entire rail franchising system “is in a mess”, adding that “the National Express time was a very poorly managed period on this line.”
The report said the DfT judged that giving up the extra cash would reduce the risk of other train operating companies with loss-making franchises seeking similar deals, but the taxpayer did forfeit £30m.
The Department allowed National Express to keep its two other franchises, and told National Express last December that the termination would not be held against the company if it were to bid for future franchises.
Committee MPs said in their report: “We are, however, concerned that the Department created a moral hazard by allowing National Express to pay a lesser financial penalty through terminating a contract than they would have done by paying £150m to exit conventually, and by choosing to not hold the termination against Nation Express in future bids.”
Committee chairman Margaret Hodge said: “The Department completely undermined its position by making clear that the termination would not be held against National Express in future bids. In doing so, the department allowed National Express to get away scot-free and with its reputation intact.
“In future, the Department must make clear to such companies that failure to deliver on their obligations will have serious lasting consequences.”
Mr Mearns recently met with East Coast train management to discuss ongoing performance issues and job concerns. The Labour MP said: “Railtrack itself failed, here, there are far more people to blame than just the last Government and National Express.
“The East Coast Main Line is one of the prime strategic infrastructure railways for the whole of the country, linking the two major capitals via the North East.
“But frankly, from my perspective, it is sadly a mess and has been for some time. It is quite clear that the original privatisation and the establishment of franchises did not secure a situation where the operators felt they could invest in the rolling stock and station services that the travelling pubic would like to see.
“I think one solution to preventing this happening again is longer-term franchises which would be beneficial all-round, but only if regulation and oversight was greater.”
Rail Minister Theresa Villiers said: “This report confirms that Labour failed to do their sums properly when they let the East Coast franchise to National Express in 2007. They massively over-estimated the income that they could expect from the franchise and failed to carry out a proper ‘due diligence’ check of the ability of National Express to deliver the returns they were predicting in their bid. That ended up costing the taxpayer money, when the franchise failed.
“We are pressing ahead with reforms to the franchise system to get better value for money for taxpayers. The Department cannot prevent any company from expressing an interest in a franchise competition, but past performance is considered when bids are assessed.”