Terminating a key rail franchise will result in the Department for Transport receiving £330-£380 million less in premium payments, a report says.
But the termination of National Express's East Coast franchise was the best means of protecting taxpayers, the report by the National Audit Office (NAO) said.
The department had taken “a tough line” and refused National Express's request in February 2009 to renegotiate its franchise following financial problems, the report said.
The NAO added that the DfT was concerned that any change to the terms of the contract would encourage other franchisees to seek similar treatment.
At the time, five of the other 15 franchisees were seen as high risk due to falling passenger revenues.
NAO analysis showed that the potential cost to the taxpayers of changing the terms for other franchisees would have amounted to between £200-400 million.
The NAO said it estimated that the DfT, which is now running the East Coast line in the public sector before a hand back to a private operator, will receive between £330-380 million less in premium income from the franchise to the end of 2012.
It had added that this shortfall was “unavoidable following the steep fall in passenger revenues due to the economic downturn during 2008/09 which led to the termination of the contract with National Express”.
“There were weaknesses in the department's records of key discussions at various points in the process, such as what might or might not have been on offer from National Express during negotiations.
“The department had to spend significant time identifying and supplying relevant records to us,” the NAO said.
The report went on: “The termination was handled well and without disruption to passenger services, but since then there has been a dip in train punctuality, although the causes are being investigated and plans are under development to rectify this.
“Analysis indicates that just over 60 per cent of the delays are the responsibility of Network Rail rather than the train operator. The amount of delay attributable to the train operator has increased, but the reasons for this are unclear because of the number of influencing factors including management of stops at stations, adverse weather conditions and train maintenance issues.”
Amyas Morse, head of the National Audit Office, said that in “terminating the East Coast passenger rail franchise, the DfT acted decisively to protect the public interest and achieved value for money by avoiding the significant risk that other holding companies would seek negotiated exits from their loss-making franchises”.
House of Commons Public Accounts Committee chairwoman Margaret Hodge MP said the DfT's action over East Coast had “sent a firm message to other rail franchisees also seeking to renegotiate more favourable contract terms, and avoided a taxpayer bail-out of an estimated £200 million to £450 million”.
Rail, Maritime and Transport union general secretary Bob Crow said the report “proves the point that public ownership can deliver rail services as a clear-cut alternative to the chaos and exploitation of the private train operators”.
“The fact that it was the public sector that had to pick up the pieces at short notice in order to protect the taxpayer when National Express left the East Coast in the lurch speaks volumes,” he said.