Why taxpayers should mourn Virgin East Coast

A number of fallacies are being peddled in the wake of the Department for Transport’s decision to take direct control of operations on the East Coast Main Line.
Fallacy one is this - this announcement somehow represents a bail-out of Virgin Trains East Coast, the current franchise operator.That isn't true.Stagecoach, which owns 90% of Virgin Trains, has lost €259m from its involvement. That in no way represents a bail-out.The company and its shareholders are taking pain as a result of forecasts that were too optimistic when Virgin Trains bid for the right to run the franchise.Fallacy number two is this - that the previous period in which a state-owned entity - Directly Operated Railways - ran the East Coast mainline, from July 2009 to February 2015, was somehow a golden age for the route.Labour politicians and rail unions have both stated, numerous times, that DOR returned €1bn to taxpayers during its time at the helm and that customer satisfaction was higher than at any other rail franchise.
Why taxpayers should mourn Virgin East Coast

Virgin Trains' new Azuma at York Station
Andy McDonald, the Shadow Transport Secretary, summed this up when he said the East Coast Main Line's best period was "under public ownership, when a billion pounds was returned to the Treasury".What these people have not been saying, understandably enough in view of their support for renationalisation, is that investment in the service under DOR was lower than it has been under Virgin Trains.The Rail Delivery Group, the industry body for Britain's railways that includes state-owned Network Rail, pointed out today that Virgin Trains has invested more in the two years in which it has operated the route than DOR did in its five-and-a-half years running it.Moreover, Virgin Trains has returned 30% per year more to taxpayers during its time running the route than did DOR, making it a much better-value option for taxpayers.
By April 2017, barely two years into its running the franchise, Virgin Trains had returned some €525m to taxpayers from running the East Coast Main Line - more than half as much as DOR did in twice that length of time.
Why taxpayers should mourn Virgin East Coast

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The Rail Delivery Group - a pan-industry body, remember - also points out that customer satisfaction under Virgin Trains has continued to grow, currently standing at 92%.Those advocating renationalisation across the piece should be asking themselves whether DOR would have been able to run the service it did had it been obliged to invest as much in the route as did Virgin Trains or if it were having to return as much to taxpayers as Virgin Trains. The answer is no, it would not.This episode does not prove that public sector entities are capable of running a service more efficiently than private sector ones. Quite the contrary. The disciplines of private sector operation returned more investment and better returns to taxpayers than public sector operation did.What it does prove, though, is that the private sector is not immune from making over-optimistic forecasts about the returns they can make from operating a rail franchise.And, even more importantly, that the profit margin running trains is so thin - contrary to what is frequently heard from supporters of renationalisation, who constantly accuse private sector operators of profiteering - that there is absolutely no money in it when things go wrong.Supporters of renationalisation argue that, if the profits made by rail operators were all recycled back into the railways, the service would be immeasurably improved.
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Not on this evidence. There were no profits to be recycled back into the railways. Just losses.Better that those losses be borne by shareholders of companies like Stagecoach than by taxpayers - the vast majority of whom never actually use a train from one year to the next.
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