What is really going on in politics? Get our daily email briefing straight to your inbox Sign up Thank you for subscribing We have more newsletters Show me See our privacy notice Invalid Email

The Tories have awarded a lucrative rail franchise to Virgin Trains just two minutes after revealing another franchise part-run by the firm was set to collapse within months

Virgin Trains East Coast is a partnership between Stagecoach and Sir Richard Branson's empire.

The government had already decided to end the franchise three years early in 2020 - which could cost taxpayers up to £2bn in lost payments to the Treasury.

But today Transport Secretary Chris Grayling admitted to the commons that the franchise only had enough cash to operate in its current form "for a matter of a very small number of months and no more."

And in a move branded "outrageous" by a rail union leader Virgin Trains was given an extension to run services on the London to Glasgow route.

Mick Cash, General Secretary of the RMT transport workers' union branded it a "shameful fiasco."

(Image: PA)

He called for the East Coast franchise to be renationalised with immediate effect and for Grayling to quit.

He said: "Chris Grayling and the Tory Government have turned transport in Britain, the nation that gave the railways to the world, into a global laughing stock. He is a specialist in failure of the highest order and should resign."

And Labour's former Transport Secretary Lord Adonis said: "On same day that Virgin & Stagecoach have failed on East Coast line, Grayling has given Virgin a sweetheart deal on West Coast, without any competition, and allowed Stagecoach to bid for future franchises & possibly also keep East Coast contract as well."

Speaking in the House of Commons said the franchise had "breached a key financial covenant" - but insisted it would continue to operate as usual with no impact on services or staff on East Coast.

But, he added: “It does mean I need to put in place, in the very near future, a successor arrangement to operate this railway and to end the current contract.”

He denied there would be a bailout, but said the Department of Transport taking over the franchise was "on the table".

Mr Grayling told MPs: "The problem is very straightforward. Stagecoach got its numbers wrong, it overbid, and it is now paying a price."

He said Stagecoach may be allowed to continue to operate East Coast on a not-for-profit basis on a "very strictly designed short-term arrangement".

(Image: AFP)

Despite the dire news, Mr Grayling immediately went on to announce that Virgin Trains West Coast had won a "short direct award" to run the West Coast line for some time longer.

"The East Coast and West Coast franchise should not be confused," he claimed.

"The West Coast franchise has a completely different corporate structure where Virgin Trains is the majority shareholder."

He added Virgin had "transformed" the West Coast line.

And he refused to rule out Stagecoach being handed plum contracts in the future, saying: "As the company is meeting its financial obligations to support the franchise, including with the full parent company’s support, and because it has operated services on the East Coast mainline successfully, the Department has concluded that there are no adequate legal grounds to restrict it from bidding on current or future franchise competitions on this basis.”

Mick Whelan, general secretary of the train drivers' union ASLEF, said: "It is outrageous that Virgin Trains has been handed a lucrative new contract to run services on the west coast main line despite serious criticism of its owners’ handling of the east coast franchise.

"And it is outrageous that this government – committed, as it says it is, to free and fair competition – doesn’t go through a proper tendering process but simply hands out a contract extension to its chums.

"John Major said privatisation would introduce competition but there is no competition. He said it would introduce investment but all the investment comes from the taxpayer. We now have the highest fares in Western Europe – and the oldest rolling stock.

"It is time to bring Britain’s railways back into public ownership."

Andy McDonald MP, Labour’s Shadow Transport Secretary, said: “That Chris Grayling awarded a profitable contract to Virgin and Stagecoach on the West Coast while simultaneously confirming the same companies have collapsed on the East Coast shows Government policy is in chaos.

“This is yet another Tory handout to private shareholders at the public’s expense. Failing train companies should not be awarded future contracts, but this Government is rewarding them for failure by extending their lucrative deal.

poll loading Should the East Coast Mainline be renationalised? 0+ VOTES SO FAR Yes No

“The Transport Secretary’s failure to stand up to Virgin and Stagecoach is a disgrace. He’s supposed to protect taxpayers’ interests, not sacrifice them to private shareholders.

“The system is broken which is why Labour will act in the public interest by taking our railways back into public ownership.”

Cat Hobbs, director of the pressure group We Own It, said: "How many times must we stand by and watch as private companies are rewarded for failure on our railways? The franchising system is beyond broken and passengers and the public are sick of this charade. We're calling on the government to bring the East Coast line into public ownership - then bring the other franchises into public hands too."