Westminster Blog

Bang: Is that the sound of the wheels coming off a transport company?

There has been growing frustration within the Department for Transport for weeks. The issue: the demand by National Express to renegotiate its £1.4bn, seven-year contract to run the East Coast rail franchise.

This request always had an element of chutzpah – given that the company had freely entered the contract of its own volition. The price was based on unrealistic forecasts of passenger growth by National Express.

No wonder that the DfT has always played hardball, warning that it could not renegotiate. If it did, there would be umpteen other transport companies beating a path to its door and demanding the same thing.

Not that today’s announcement is great news. It’s unclear whether – by pulling the plug on the National Express franchise – the taxpayer will ultimately end up with a better or worse deal. There may not be much appetite from other companies to take on the line during a recession. And will the year of “temporary” public ownership mean running losses for the department? (Answer: No; the route would be profit-making if it wasn’t for the cost of the franchise).

It seems clear though that Lord Adonis, the new transport secretary, has played the best of a difficult hand. The move was welcomed this morning by Norman Baker, the Lib Dem transport secretary, although Baker also raised the thorny question of National Express’s other two franchises. It would send out a clear signal to the rest of the industry if Adonis removes the profitable East Anglia and c2c franchises from the company’s hands. This morning the transport secretary said this was “possible” and options would be discussed. But no firm decision has been made.

At the back of Adonis’s mind may be the concern that even these two successful routes could struggle to attract more generous bidders at this time. Also - according to Peston’s blog – the government may not be able to remove the other two contracts (as punishment for the East Coast fiasco) because the East Coast franchise is controlled by a special purpose vehicle. Or so NE’s lawyers believe.

The DfT has been unhappy for weeks at the idea that it was “renegotiating” the contract. Of course it had received this request from the company – but that’s not quite the same thing.

The nationalisation of the East Coast line won’t happen until the end of the year, when National Express’s funding for the line runs out. Or so the company says in today’s statement.

That was seemingly contradicted by Ray O’Toole, chief operating officer, on this morning’s Today programme. He claimed the company would only lose the franchise “if the existing economic conditions continue”, and “if this economic cycle continues in the vein it is at the moment”.

I’m told that senior people in the DfT listened to this in disbelief.