Stagecoach East Coast deal to be probed by MPs

The decision to end the East Coast Mainline rail franchise early is to come under scrutiny from MPs.

The Department for Transport has said Stagecoach and Virgin will withdraw from running the service within months after running into difficulties.

Now the House of Commons transport committee has announced that it will hold an inquiry into the matter.

Rail Minister Jo Johnson acknowledged the companies overbid for the right to run the service.

He told the BBC's Today programme: "They overbid, it's very simple and the department is looking very carefully into the bidding process to ensure there aren't any incentives for bidders to overbid."

However, he said it was not possible to remove the element of risk entirely: "With any private enterprise there is an element of risk. It is unrealistic to expect government to eliminate that altogether."

Lilian Greenwood, who chairs the transport committee, said: "There are serious questions to be asked of the train operator, Network Rail and ministers and the transport committee intends to ask them.

"The failure of the East Coast franchise has wider implications for rail franchising and the competitiveness of the current system. Lessons need to be learned by all concerned.

"In the meantime, the Department for Transport must take the right steps to protect passengers and taxpayers. Safeguards must be put in place to restore public confidence in the sustainability of our railways."

The East Coast Mainline franchise was taken into public ownership in 2009 after being run by National Express.

It was re-privatised when Stagecoach and Virgin signed a deal to run the East Coast line from 2015 to 2023, promising to pay the government £3.3bn to run the service.

Stagecoach owns 90% of the joint venture and Virgin owns the remaining 10%.

Last week, Transport Secretary Chris Grayling said Stagecoach had "got its numbers wrong" and would continue running the London to Edinburgh line only for "a small number of months and no more".

He said the government might step in to run the service, adding that the day-to-day operation of the line would be unaffected.

The National Audit Office has already announced it will investigate the government's handling of the franchise.

A Stagecoach Group spokesman said: "Virgin Trains East Coast is a well-run, profitable railway and we are continuing to meet our contractual commitments, as we have done throughout the past 21 years in operating train services on behalf of the government."

He added that customer satisfaction with the route was high and that it was "delivering 30% higher payments to the taxpayer than when the route was in public ownership".

And Mr Johnson told the BBC that passenger journeys had doubled since the line had been run as a franchise in the 1990s.

Mr Grayling has said he is considering two approaches.

One option is to allow Stagecoach to continue operating the franchise on a short-term and not-for-profit basis until a new contract is awarded in 2020.

Alternatively, East Coast Mainline could be brought back under government control and be run by the Department for Transport through an operator of last resort.