Today the government announced that the preferred bidder to run the East Coast Main Line is a Virgin/Stagecoach consortium.
In a purely ideological move, the re-privatisation has been rushed through ahead of the General Election, taking 16 months, instead of the recommended 24 months.
Re-privatising the East Coast is not in the public interest. Since being under public ownership in 2009, the train line has returned over £1bn to the Treasury, has had record high customer satisfaction ratings, has increased profits and won 37 industry awards. In 2013/14 alone, East Coast returned over £225m to the government.
Rail privatisation is a scam. In 2012/13 Virgin trains received indirect subsidies of £298m through Network Rail’s grant, and paid back £104m to the government in franchise payments. During this same period, East Coast received £187m in indirect subsidies and paid the government £203m. East Coast, therefore, returned a net payment of £16m to the government, while Virgin Trains received £194m in taxpayer subsidies. Virgin paid out £40m in dividends to shareholders during this period.
In addition, on the West Coast Main Line, between 1997 and 2012 Virgin-Stagecoach Group received £1.9bn in net subsidies, and made a cumulative profit of £674m. Nearly all post-tax profits over this period, some £460m, were paid out in dividends to shareholders and parent companies, as compared to the £370m paid to the government in franchise payments.
According to the Centre for Research on Socio-Cultural Change (CRESC, 2013):
“This company operates in a space of politically constructed profit, because without this direct subsidy, the £674 million of cumulative profit could not have been found over the 16 years. Indeed, the £202 million West Coast Trains then paid as corporation tax on profits could be understood as simply the recycling of a small part of a much larger state subsidy back to the state.”
The Department for Transport has linked re-privatising the East Coast to a new fleet of passenger trains, but these trains were in the pipeline anyway and could have been introduced with East Coast remaining in public hands. The government also claims that over the 8-year East Coast contract – the Virgin/Stagecoach consortium will pay £3.3bn to run the franchise. However, it is unclear what the net receipt to taxpayers will be, given that track access charges have declined by around 60% since privatisation in 1994.
East Coast does need investment, but it’s a myth that this will mostly come from the private sector. Upgrades to the West Coast Main Line, at a cost of nearly £10bn, were substantially covered by the taxpayer. Research shows that genuine at risk private sector investment represents only about 1% of all the money that goes into our railway network.
The contract for the East Coast Main Line has not yet been signed, and it is not too late for the government to stop the process and keep the line in public hands, in the interests of passengers and taxpayers.