Government takes over Southeastern rail firm after £25million breach of franchise deal

Train operator Southeastern was today taken over by the Government in an extraordinary intervention after failing to declare more than £25million of taxpayer funding in a ‘serious breach’ of its franchise agreement.

The Serious Fraud Office is now set to be called in to investigate and Elodie Brian, the chief financial officer of transport firm Go-Ahead – the majority owner of the rail firm’s parent company Govia – has already resigned.

The dramatic move announced at 7am today makes Southeastern the third UK rail franchise to be placed under Government control, alongside London North Eastern Railway since June 2018 and Northern since January 2020.

Next year, ScotRail will become the fourth rail franchise to be run by the Government from March 2022 after Dutch firm Abellio had its contract ended early following criticism over performance levels. 

The Department for Transport will take over running services on Southeastern’s network – which runs across South East England, covering London, Kent, East Sussex and the High Speed 1 line to St Pancras – from October 17.

Transport Secretary Grant Shapps said an investigation by the DfT identified evidence that since October 2014 the firm has not declared more than £25million of historic taxpayer funding, which should have been returned.

Further investigations are being conducted and Ministers will consider options for more action, including financial penalties. Conservative MP Huw Merriman said he understands that the Serious Fraud Office ‘will be involved’. 

A source with knowledge of the probe told the Financial Times today that Southeastern had referred itself to the SFO over the missing money, and investigators are now considering whether to pursue the matter further. 

Southeastern was today taken over by the Government after failing to declare more than £25million of taxpayer funding

Southeastern was today taken over by the Government after failing to declare more than £25million of taxpayer funding

Southeastern was today taken over by the Government after failing to declare more than £25million of taxpayer funding 

Southeastern's network runs across South East England, covering London, Kent, East Sussex and the High Speed 1 line

Southeastern's network runs across South East England, covering London, Kent, East Sussex and the High Speed 1 line

Southeastern’s network runs across South East England, covering London, Kent, East Sussex and the High Speed 1 line

This graphic by Project Mapping shows the UK rail network split by operator. Only LNER and Northern are operated by the Government, but Southeastern is set to join them next month on October 17. The map is used by National Rail Enquiries

This graphic by Project Mapping shows the UK rail network split by operator. Only LNER and Northern are operated by the Government, but Southeastern is set to join them next month on October 17. The map is used by National Rail Enquiries

This graphic by Project Mapping shows the UK rail network split by operator. Only LNER and Northern are operated by the Government, but Southeastern is set to join them next month on October 17. The map is used by National Rail Enquiries

Mr Shapps said: ‘There is clear, compelling and serious evidence that LSER (London & South Eastern Railway) have breached the trust that is absolutely fundamental to the success of our railways. 

‘When trust is broken, we will act decisively. The decision to take control of services makes unequivocally clear that we will not accept anything less from the private sector than a total commitment to their passengers and absolute transparency with taxpayer support.

UK rail franchises under Government control

Southeastern’s services will be be run from October 17 by the Government Operator of Last Resort, which already oversees London North Eastern Railway and Northern. Here is why the other two franchises ended up in the control of the Department for Transport:

LONDON NORTH EASTERN RAILWAY (LNER)

The Government’s Operator of Last Resort has run services on the East Coast Main Line as London North Eastern Railway since June 2018, following the failure of the Virgin Trains East Coast franchise.

Trains on the route were brought back under public control with the London North Eastern Railway (LNER) brand being resurrected from the 1940s.

The East Coast route connects London King’s Cross to stations in the North and Scotland including York, Leeds, Newcastle, Edinburgh, Aberdeen and Inverness.

VTEC, a joint venture between Stagecoach (90 per cent) and Virgin (10 per cent), began operating in March 2015.

The firms agreed to pay the Government £3.3billion to run trains until 2023, but the contract was ended prematurely after they failed to achieve revenue targets.

Stagecoach lost around £200million over the course of the contract. VTEC was the third private operator to fail to complete the full length of a contract to run East Coast services.

GNER was stripped of the route in 2007 after its parent company suffered financial difficulties, while National Express withdrew in 2009. Trains were run by the DfT for six years up to VTEC taking over.

NORTHERN 

Rail services on the Northern rail network were taken under public control on March 1, 2020 following years of poor performance.

Arriva-owned Northern had received the lowest overall score of all train companies in a major survey by watchdog Transport Focus, with just 72 per cent of passengers were satisfied with their journey.

And Office of Rail and Road figures showed only 55 per cent of Northern trains arrived at stations within one minute of the timetable in the 12 months to February 1, compared with the average across Britain of 65 per cent.

The chaotic introduction of new timetables in May 2018 saw hundreds of Northern trains cancelled each day.

Northern was Britain’s fifth-biggest rail operator based on passenger journeys. It began operating in April 2016 and was awarded the franchise until March 2025, but Grant Shapps announced in January that its contract would be ended five years early.

Problems faced by the firm included cancelled infrastructure projects, delays in the delivery of new trains and prolonged industrial action.

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‘Under the new operator, we will prioritise the punctual, reliable services passengers deserve, rebuild trust in this network, and the delivery of the reforms set out in our Plan for Rail – to build a modern railway that meets the needs of a nation.’

Southeastern’s services will be run by the Government Operator of Last Resort, which already oversees London North Eastern Railway and Northern. The DfT said this will have ‘no impact’ on Southeastern’s staff.

Mr Merriman, who chairs the Transport Select Committee, said a need for ‘confidence in our railways’ likely led the Government to take action.

Asked about the situation on BBC Radio 4’s Today programme, he said: ‘This has just been announced at 7 o’clock and I understand the Serious Fraud Office will be involved in this, so there is a limit to what I can say.’

He added: ‘If there appears to be evidence of wrongdoing, then it is right to sweep away.’

A brief statement on Southeastern’s website said: ‘Our passengers will see no change in our day-to-day operations. All tickets will remain valid after transfer and new tickets can continue to be purchased in the usual way.’

Southeastern has been running services since 2006, operating one of the busiest networks in the country including the UK’s first domestic high-speed service with Javelin trains.

It employs 4,000 workers and serves 180 stations using a fleet of almost 400 trains.

According to the firm’s website, 640,000 passengers use 2,016 services every weekday. It also runs 1,755 train services on Saturdays and 967 on Sundays.  

Southeastern’s latest contract started in April 2020, running until October 16, with the option to extend at the DfT’s discretion until March 2022.

Go-Ahead shares fell more than 22 per cent in morning trading.

The firm’s chairwoman Clare Hollingsworth said: ‘We recognise that mistakes have been made and we sincerely apologise to the DfT. We are working constructively with the DfT towards a settlement of this matter.’

The company named Gordon Boyd as interim chief financial officer. Current chief executive David Brown is due to retire in November and be replaced by Christian Schreyer.

The group said the release of its results for the year ended July 3, 2021, scheduled for September 30, has been postponed.

Govia, a joint venture between Go-Ahead (65 per cent) and Keolis (35 per cent), also runs Govia Thameslink Railway, which operates Thameslink, Southern, Great Northern and Gatwick Express trains.

Rail, Maritime and Transport union General Secretary Mick Lynch said: ‘There now needs to be a forensic examination of all the private rail contracts with those caught cooking the books called to account.

‘It defies belief that even after this scandal was exposed that Govia are still running UK rail services.

‘They should be kicked out and the whole network should be brought into public ownership.’

Shadow transport secretary Jim McMahon said: ‘This is yet another example of the complete failure of the franchise model, which prioritises private company profits over passengers and service.

‘Labour has long argued that public ownership of the rail network will provide better value for the taxpayer. Ministers have the opportunity to bring all the rail franchises back in house over the next six months.

‘They must acknowledge their previous approach just hasn’t worked.’ 

Grant Shapps said an investigation by his department identified evidence that since October 2014 the company has not declared more than £25 million of historic taxpayer funding which should have been returned

Southeastern's services will be run by the Government Operator of Last Resort, which already oversees LNER and Northern

Southeastern's services will be run by the Government Operator of Last Resort, which already oversees LNER and Northern

Southeastern’s services will be run by the Government Operator of Last Resort, which already oversees LNER and Northern

And TSSA leader Manuel Cortes said: ‘What the case of Southeastern tells us is the days of rail franchising must now be well and truly over. Time and time again we see the private sector fail and taxpayers ride to the rescue.

Who is the Go Ahead boss who resigned today?

 

Elodie Brian, who resigned today, was the chief financial officer of transport firm Go-Ahead – the majority owner of the Southeastern’s parent company Govia.

Ms Brian took on the role in June 2019 after holding it on an interim basis since December 2018.

The 41-year-old previously worked for ten years at Southeastern, where she was finance and contracts director after being financial planning manager. She also did the same job for Renault Financial Services.

Ms Brian is listed on the electoral roll as living in a £3.3million six-bedroom house in Hammersmith, West London

Ms Brian is listed on the electoral roll as living in a £3.3million six-bedroom house in Hammersmith, West London

Ms Brian is listed on the electoral roll as living in a £3.3million six-bedroom house in Hammersmith, West London

Ms Brian has a degree in English and Spanish from Paris Nanterre University, and a business degree at HEC Paris.

She is listed on the electoral roll as living in a £3.3million six-bedroom house in Hammersmith, West London. 

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‘We need the Government to dump the failed franchise system, end the profiteering of the train operating companies and take over the whole thing, lock stock and rails. 

‘It’s a total scandal that Govia is now being investigated by the serious fraud office over millions of pounds of public money and yet they are still running Govia Thameslink Railway (GTR) – the government must immediately bring GTR services into public ownership.

‘Taxpayers must be reassured that public money is not being squandered and that they have zero tolerance of fraud.’

It comes after the Government in May unveiled long-awaited reforms of the country’s fragmented railway network, including a new centralised price and reservations system.

By launching a new public body, Great British Railways, whose name has echoes of nationalised British Rail in the previous century, Prime Minister Boris Johnson’s government has already begun to take greater control of the sector.

But it insists that the new route taken is not equivalent to renationalisation of the railways – a sector that continues to be hit hard by the pandemic depressing passenger numbers.

Britain’s rail tracks are already in state hands but the trains are run by mostly private companies enjoying large government subsidies.

And since privatisation of the sector in the mid-1990s, the taxpayer has been forced to take control of financially-struggling franchises.

Should the government eventually hand the running of Southeastern back to a private company, it will meanwhile not be under the franchise system, which was scrapped a year ago for new contracts.

Private rail operators are still paid management fees for running services but now face tougher scrutiny and greater state involvement. 

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