Rail Franchise Failure 'Cost Taxpayer £30m'

The deal to terminate National Express's rail franchise cost the taxpayer £30m a report has claimed.

The House of Commons public accounts committee said the Department for Transport (DfT) refused an offer of £150m from National Express to allow the company to end the franchise by mutual consent.

Instead, it opted to terminate the contract at the end of 2009 - which cost the operator just £120m.

The deal also allowed National Express to retain its other franchises. It was also told its performance would not be held against it if it made bids for other contracts.

The DfT said it refused the higher financial settlement in order to deter other loss-making franchises from seeking a similar agreement, a move the report said had created "a moral hazard" when dealing with stakeholders.

"The department have potentially incentivised other holding companies with loss-making franchises to terminate, rather than renegotiate, their contract with the department, as they know doing so will cost them less and will not affect their ability to compete for other contracts," the MPs said.

Committee chairman Margaret Hodge said National Express should have been subject to greater scrutiny before being awarded the licence in 2007.

"National Express had already expanded too fast and had a massive billion pound debt it had to carry and it couldn't carry it once the recession started," she said.

"They'd also been terrifically optimistic about the increase in the number of passengers they could attract to that line."

The general secretary of the RMT union, Bob Crow, said the report was "shocking" and exposed the "financial and operational madness of rail privatisation."

The east coast line has been state-run since the collapse of the National Express franchise.