Virgin will continue to run the west coast mainline for at least nine months after it was handed a temporary extension to its franchise, as the transport secretary attempts to resolve a legally fraught saga that has thrown rail policy into chaos.
Patrick McLoughlin will make an announcement later on Monday to the House of Commons with more details of what went wrong in a fiasco that saw the lucrative London-Manchester-Glasgow service awarded to FirstGroup before a judicial review sought by Virgin stopped the contracts being signed.
The arrangement, which is expected to see Virgin remain in control for between nine and 13 months, will, McLoughlin hopes, deflect both any further legal action and calls for renationalisation. The alternative – asking the government-owned Directly Operated Railways (DOR) to run the route – would have seen both the major north-south arteries in state hands.
During that extension a new, short franchise competition will be held – open to any bidder – to cover a subsequent interim period during which the long-term future of the line is decided. The government said it believed its solution was the best way to ensure services were maintained and that there was no impact on passengers.
McLoughlin said: "The cancellation of the InterCity West Coast (ICWC) franchise is deeply regrettable and I apologise to the bidders involved and the taxpayer who have a right to expect better.
"My priority now is to fix the problem and the first step is to take urgent action to ensure that on the 9 December services continue to run to the same standard and passengers are not affected.
"I believe Virgin remaining as operator for a short period of time is the best way to do this and my officials and I will be working flat out to make this happen."
On 3 October the previous franchise competition was cancelled after the Department for Transport (DfT) uncovered "significant technical flaws" while preparing to defend the action in court.
It also paused the franchise programme, including live competitions on Essex Thameside, Great Western and Thameslink, and set up two independent reviews into what went wrong with the west coast competition and the wider DfT rail franchise programme.
The arrangement appears to put Virgin in pole position for any short franchise competition. Senior industry sources said that it seemed a "foregone conclusion" that the incumbent would stay in place until a long-term handover.
However, analysts suggest that there may be implications from the decision for the other paused franchise competitions – possibly seeing the services passed, at least temporarily, into state hands.
Gerald Khoo of Espirito Santo said: "We believe this decision has been driven by concerns at the DfT that it may not be legal to extend a rail franchise agreement more than once. Great Western and Essex Thameside have both already been extended. Therefore, we would view these franchises as being at risk of either being transferred to DOR or being the subject of competitive tenders for any short-term extension (challenging in the time available, but not impossible)."
In a statement, FirstGroup which had entered into a bitter war of words with Virgin after the process was derailed in late August, merely affirmed its commitment to keeping the railways in the private sector.
It said: "We believe the private sector provides the most effective and efficient way to deliver passenger rail services in the UK. We await the outcome of the independent investigations into the ICWC franchise competition and the wider rail franchising process, which we hope will provide a greater degree of certainty and confidence not only to future bidders, but to employees, stakeholders and the travelling public too. "
Unions meanwhile denounced the arrangement as an "ideological stitch up."
The RMT general secretary, Bob Crow, said: "This announcement is no surprise. The government are ideologically opposed to public ownership of the railways and, in collusion with the private train operators, have stitched up a shabby deal that will enable them to rerun the whole franchise fiasco in a years time."
He added: "Richard Branson and his shareholders are laughing all the way to the bank. Not only have they made hundreds of millions from the rail privatisation lottery but they have now scooped the rollover as well."
