Virgin Trains

'Real disaster'

Today Programme

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Richard Bowker, former head of the Strategic Rail Authority, has been speaking to BBC Radio 4's Today Programme following the decision by Stagecoach to take the government to court after it was barred from rebidding for East Midlands railway franchise.

It was because of a dispute over pensions and Mr Bowker said it illustrated that the public sector was not able to manage to risk.

"The real disaster is we've ended up in a position where two of the Britain's... best, most experienced and most innovative... train operators are excluded from a market at precisely the time when that is the worst possible outcome for the government," he said.

The other train operator he referred to was Virgin Trains which is 49% owned by Stagecoach, and had been bidding to renew the West Coast franchise.

Stagecoach fights back on pensions


Stagecoach, which owns 49% of Virgin Trains, says it faced pensions risks of "well in excess" of £1bn for retail franchises it was bidding to operate.

This is after it was barred from three rail franchise bids - East Midlands, South Eastern and West Coast Partnership - last month when the Department for Transport (DfT) disallowed the bids because they did not meet pensions rules.

It a stock exchange announcement today, Stagecoach said a senior Department for Transport official "verbally advised that we had been excluded from all three competitions for submitting non-compliant bids, principally in respect of pensions risk".

"In our bids, we refused to accept the potential pension risks that the Department for Transport requires operators to bear in relation to the three new franchises.

"The full extent of these risks is unknown, but we estimate them to be well in excess of £1bn for the three franchises".


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More on that rail saga. Last year, rail services on the East Coast Main Line - run by Stagecoach and Virgin - were brought back under government control. Is the pensions row revenge?

"Is it payback? I was assured by Chris Grayling, in his office, that Stagecoach and Virgin were seen as two of the very best operators in the railways over the last 20 years... And that he was determined... he wanted Stagecoach and Virgin to remain on the railways. Obviously the last 24 hours, that has changed the government's position on these franchises. I'll need to think about that," Martin Griffiths, chief executive of Stagecoach said.

He said he had not walked away from the East Coast Main Line and left it in a "much better place".

Chris Grayling is the Transport Secretary.

So why did others bid ?

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Martin Griffiths, chief executive of Stagecoach, says that the company put in its bids for the rail franchises on the terms set out by the Rail Delivery Group.

"Nobody put in compliant bids, that I am very confident I can tell you. This changed over a number of months with the department changing instructions and asking for rebids".

Will there be a challenge? "The last 24 hours have been difficult, difficult for our people. We need to take some time to reflect on that. It’s obviously very very disappointing and we need to hear what the department has to say".

'Very significant' pension bill

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Martin Griffiths

Martin Griffiths, chief executive of Stagecoach, has been speaking to the BBC Radio 4's Today Programme about the announcement yesterday that the Department for Transport (DfT) had disallowed the bids for train routes because of pensions rules.

Stagecoach had put in for the East Midlands and South Eastern franchises, both of which have been rejected, while Virgin Trains, 49% owned by Stagecoach, was bidding to renew the West Coast franchise, also in partnership with France's SNCF.

Mr Griffiths said that the train operators were set up to deliver services, not take long-term funding risk.

"Historically... pensions have been viewed as long-term assets and liabilities and railway pensions, the state, the government, had been the long-term guarantor of surpluses and liabilities of the pension schemes. What's emerged over the last 24 months is the government… moving away from that principle to try and say no, these are private sector pensions, the government, the state does not stand behind them, and therefore to push those risks of long-term funding to train operators".

Stagecoach's bill? It could be "very very significant," he said, but "we don't actually know".

The private companies have been funding the regular pension payments, not the long-term deficits, he said.

Rail company 'extremely concerned' it can't run future trains through Cumbria

One of the companies running Virgin Trains, which operates services through Cumbria, says it's been barred from competing for the rail franchise again, because it's refusing to put more money into the industry-wide pension scheme.

Picture of Virgin train in a station with blurred passenger walking past on platform

Stagecoach had been shortlisted for the West Coast route, where it's jointly bidding in partnership with Virgin and SNCF. It's also involved in bids for the South Eastern and East Midlands franchises.

The company's asking for an urgent meeting with the Department for Transport.