Officials criticised over £30m rail loss

A key Commons committee found failings in the way the Department of Transport handled the termination of National Express’s East Coast rail franchise in 2009, saying it had created a “moral hazard.”

Officials turned down an offer of £150m from National Express to give up the franchise by mutual consent, according to the report by the Public Accounts Committee.

Instead the department chose to terminate the contract in late 2009, and received £120m from the operator.

The reason given was that it would cut the risk of other train operators with loss-making franchises seeking similar deals.

The department not only allowed the operator to keep its two other franchises, but told it last December that the ending of the contract would not be held against it in future.

Since then, the committee’s report said, other franchises had been in financial difficulty, but had not sought to cancel contracts.

It added: “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 consensually, and by choosing to not hold the termination against National Express in future bids.”

Committee chairman Margaret Hodge said the department had been right to terminate the National Express contract.

But she went on: “National Express paid just £120m – less than they had offered – to walk away from a contract worth £1.4bn to the taxpayer. The department turned down the offer of an extra £30m for a ‘no fault’ exit in order to send a warning to other holding companies.

“But 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.”

Bob Crow, general secretary of the RMT union, said the case for returning rail to public ownership was “overwhelming”.

He said: “Not only were National Express allowed to waltz away from one the country’s most prestigious routes without penalty but we now find that it cost the British taxpayer a fortune in the process.

“Instead of learning the lessons from the second private sector collapse (following the demise of Great North Eastern Railways) on the East Coast route, the Government are now hacking it to bits to fatten up the profit margins for a third round of privatisation.”

Meanwhile it has emerged that punctuality has slid on the East Coast Main Line since the state-backed Directly Operated Railways took over.

Over two years under National Express punctuality improved from 82.3 per cent to 89 per cent. But under DOR it has slid to 83.1 per cent.

A spokesman for DOR pointed to the past two severe winters and said four-fifths of delays were down to infrastructure failure, which is Network Rail’s responsibility.