Beckett overrules OFT on National Express

The new Government flexed its regulatory muscles yesterday by overruling the Director General of Fair Trading and referring the acquisitions of two rail franchises by National Express, the transport giant, to the Monopolies & Mergers Commission.

The referrals are the first indication of the approach Margaret Beckett, the President of the Board of Trade, will take to competition policy. Her tough action took the industry by surprise and may bode ominously for other mergers awaiting clearance, including the British Airways-American Airlines alliance, the Bass takeover of Carlsberg Tetley and the P&O-Stena cross-Channel ferry merger.

In referring the two National Express acquisitions, Mrs Beckett overruled John Bridgeman, the Director General of Fair Trading.

He advised that neither the takeover of ScotRail, the train company that runs services north of the border, nor that of Central, a franchise which ferries passengers around the West Midlands, should be sent to the MMC.

However, Mrs Beckett said that in the case of Central she had decided there were competitive concerns "that warranted a thorough investigation by the MMC". The Office of Fair Trading also advised her that the ScotRail acquisition should be referred only if National Express did not divest itself of its coach company Scottish Citylink.

Both were rejected by Mrs Beckett, who referred the deals directly to the competition authority. The takeovers, according to the Secretary of State, raised "serious competition concerns in the market for the supply of public transport passenger services".

North of the border, ScotRail operates all local and commuter services, although not daytime InterCity trains, over a 1,880-mile network. But the company also runs Scottish Citylink, one of the largest coach companies.

In many instances, both rail and train divisions run rival services. For example, between Glasgow and Inverness Citylink runs eight coaches a day. ScotRail runs three trains on the same route. The company also operates 80 per cent of bus services in the West Midlands as well providing many of the railway commuter services in the area.

The action was described by National Express as disappointing. "In the case of ScotRail we could have said yes we accept the point about divestment or we might have disagreed and then gone to the MMC. We are puzzled why we were not consulted," said Colin Child, finance director of National Express.

If it comes down to a choice between buses and trains, the decision will not be a difficult one to make. The coach services in Scotland, according to Mr Child, contribute somewhere "in the order of pounds 10m" to the group's total sales. ScotRail passenger revenue topped pounds 117m last year and will receive, over seven years, more than pounds 1.6bn.

The Secretary of State's moves are not without precedent. Stagecoach, which has a 20 per cent share of the Scottish bus market, was told that it would face an automatic referral if it won the ScotRail franchise.

National Express's vast coach network and its large rail division, with annual revenues greater than pounds 350m, have seen the company already tangle with the OFT. Last year, the company's involvement in both coach and rail services on the London to East Midlands/ South Yorkshire corridor would, according to the OFT, lead to "a significant loss of competition".

Meanwhile, National Express yesterday announced it had agreed a pounds 38m order for new trains on Midland Mainline which will enable it to extend its seven-year franchise on the route to 10 years. The state-of-the-art diesel units are being built in Derby by trainmakers Adtranz and will double the frequency of service on most routes when they come into service in summer 1999.