Stagecoach operates a joint venture with Virgin
Stagecoach says it has been told by the Department for Transport that it has been disqualified from three UK rail franchise competitions.
It is out of the running for East Midlands; South Eastern, which is a joint bid with Alstom; and West Coast which is a joint bid with Virgin and France’s SNCF. Shares in the company closed more than 9% lower on the news which Sir Richard Branson said could spell the end of Virgin Trains.
A senior DfT official verbally informed Stagecoach that it has been excluded from all three competitions for submitting non-compliant bids principally in respect of pensions risk, it said.
Bidders for these franchises were asked to bear full long-term funding risk on relevant sections of the Railways Pension Scheme. This is at a time when The Pensions Regulator is seeking additional funding because of serious doubts over the Government’s ongoing support for the industry-wide scheme.
Sir Richard said: “We’re baffled why the DfT did not tell us that we would be disqualified or even discuss the issue – they have known about this qualification in our bid on pensions for months.
“Our first priority is always to look after our teams. The pensions regulator has warned that more cash will be needed in the future, but no one knows how big that bill might eventually be and no responsible company could take that risk with pensions.
“We can’t accept a risk we can’t manage – this would have been reckless. This is an industry-wide issue and forcing rail companies to take these risks could lead to the failure of more rail franchises.”
In an extraordinary broadside at the department, Stagecoach Group chief executive Martin Griffiths, pictured, said: “We are extremely concerned at both the DfT’s decision and its timing. The Department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.
“We have drawn on more than two decades of rail experience and worked in partnership with local stakeholders to develop high quality proposals to improve each of these rail networks.
“We bid consistent with industry guidance issued by the Rail Delivery Group and shared with the DfT. Without ongoing Government support for the long-term funding of railway pensions, The Pensions Regulator has indicated that an additional £5billion to £6billion would be needed to plug the gap in train company pensions.
“In contrast, the rail industry proposed solution would have delivered an additional £500million to £600million into the scheme. This would have provided better stability and security for members and much better value for taxpayers.
“We are shocked that the Government has rejected this for a higher risk approach. We would urge that a full independent value for money review is undertaken into this issue without delay.
“Along with many other train companies, we believe strongly that the private sector should not be expected to accept material risks it cannot control and manage. In fact, this was a key finding of the Brown review into rail franchising more than six years ago.
“We are therefore extremely surprised that the Government still expects private operators to take risks they are not best placed to manage, despite the recent difficulties experienced by a number of operators of outsourced public sector contracts.
“Forcing rail companies to take these risks could lead to the failure of more rail franchises and cannot be in the best long-term interests of either customers, employees, taxpayers or the investors the railway needs for it to prosper.
“This is more evidence that the current franchising model is not fit for purpose, a view which has already been expressed by Keith Williams, who is leading the independent review of the rail system.
“It also further damages the already fragile investor confidence in the UK rail market and it undermines the involvement of two of the last British transport groups who are part of running Britain’s railway.
“Over more than 20 years, we have delivered industry-leading performance, record passenger growth, excellent industrial relations, and the highest levels of customer satisfaction in the sector. We will continue to focus on delivering high quality services for our customers at our existing rail businesses.”