The U.K. Government will take control of a key rail artery linking London with Edinburgh in a move that escalates a debate over whether Britain’s wider rail network should be re-nationalized.
Stagecoach Group and Virgin Trains will be stripped of the East Coast Main Line contract in June, with the route placed under the control of London and North Eastern Railway. This is the third time in a decade that private companies have bailed out of running the 400-mile-route.
Transport Secretary Chris Grayling said that while there’ll be no nationalization: “The route has its challenges but it is not a failing railway.”
East Coast staff will transfer to London and North Eastern Railway, which will initially be overseen by advisers comprising engineering firm Arup Group and accountants Ernst & Young, recruited earlier as potential emergency operators for failed franchises.
“When it is fully formed the new LNER operation will be a partnership between the public and private sectors,” said Chris Grayling, while adding that the final structure remains to be determined.
The opposition Labour Party favors taking the network back into public ownership, saying that the latest failure shows that the franchise model is fundamentally flawed. Andy McDonald, Labour’s transport spokesman, said the government was seeking to create a “smokescreen” by touting closer state-corporate ties and that the proposal does not amount to nationalization.
Polls have consistently shown high public support for re-nationalization, making the issue problematic for Prime Minister Theresa May and the Conservative Party for which a privately run economy has been a ruling doctrine since Margaret Thatcher.
Stagecoach, which had a 90 percent stake in the East Coast franchise, has blamed its woes on a challenging economic environment and Network Rail, saying the infrastructure operator failed to deliver agreed track upgrades.
Shares of Stagecoach has lost at least 200 million pounds (€228 million). Stock fell almost 6 percent when Grayling said in February that the company would be ejected from a franchise originally due to run until 2023 after breaching a key financial covenant. Virgin, which lent its branding to the venture, is closely held.
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