Virgin train services taken over by state with £1bn subsidy

Sir Richard Branson's Virgin train companies have, in effect, been taken over by the state and are receiving more than £1bn in subsidies from taxpayers.

Sir Richard Branson's Virgin train companies have, in effect, been taken over by the state and are receiving more than £1bn in subsidies from taxpayers.

The Government's Strategic Rail Authority (SRA) is in charge of Virgin services on the flagship West Coast London to Glasgow route and those operating across the Cross Country network. The arrangement could last until 2012, ministers say.

It will be seen as another example of "creeping re-nationalisation" and follows the decision by the SRA to strip the French-owned train operator Connex of its franchise and run it as South East Trains. The Government set up the state-backed Network Rail to run the infrastructure after the privately-owned Railtrack went bankrupt.

At Virgin Trains the company's managers are running services on behalf of the authority with Sir Richard's business receiving a set fee above costs. The West Coast franchise began running on a "cost-plus" basis a year ago and last week the SRA started to operate the Cross Country network under a similar regime.

The Government said it was in no hurry to return the franchises to the private sector. Indicating the Virgin companies had, in effect, been re-nationalised, Lord Davies of Oldham told the House of Lords last week: "Taxpayers' interests are protected through control of the budgets for both franchises."

The infusion of taxpayers' money comes partly as compensation for the delays to the modification of the London to Glasgow line and much of the rest is to help Virgin run the Cross Country network.

Under the plan drawn up at the time of privatisation in 1996, Sir Richard's rail interests should have been making contributions to the Exchequer, rather than the other way round. Virgin received £394m from taxpayers in 2002-3 and £514m in 2003-4 but the SRA hopes to cut the figure in the current financial year to £234m. The SRA wanted to negotiate fresh long- term franchise agreements with the West Coast company by March last year and with Cross Country by the end of last month. But in each case negotiations continue. Waiting in the wings are companies such as National Express and First Group.

Bob Crow, the leader of the RMT rail union, said the SRA should stop throwing "huge" sums of public money into shareholders' pockets and spend the money on improving the railways.

Paul Marsden, a Liberal Democrat transport spokesman, said since 1997 the number of delays on the railways had doubled despite an increase in public subsidies paid to train operators.

A spokesman for the SRA denied the "cost-plus" system amounted to re-nationalisation.

A Virgin spokesman said the SRA had not held the company to any deadlines and that it expected negotiations on new long-term franchises to be completed within a couple of months.