TRANSPORT - TRAINS - VIRGIN

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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, "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 2003 and with Cross Country by the end of March 2004. 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. Barrie Clement

Virgin Trains were criticised by the Government following the news that fares were to rise by 10%. Junior transport minister Keith Hill said the increases on the West Coast mainline related to unregulated fares. Responding to a Commons written question from Tory Michael Jack, Mr Hill said the Strategic Rail Authority would be meeting representatives from Virgin Trains to discuss the matter. But he added, "In light of recent disruption on the rail network, and the wish to attract more passengers to rail, the Government finds Virgin's announcement regrettable." The development followed criticism of the increases from Margaret Beckett, the Leader of the House. When asked about the fare rises by Mr Jack during business questions, Mrs Beckett said she shared his concerns. She said, "It's hard to see how it will attract passengers back to the railway."

Virgin Trains was blaming a rise of almost 10% in prices on the aftermath of the Hatfield disaster. Passengers who had endured months of delays on the rail network would have to pay the increased ticket prices. Virgin said it regretted the increase and blamed Railtrack for failing to provide adequate compensation for disruption caused by the Hatfield crash. A Virgin spokesman said, "We are very unhappy with the situation, which is entirely out of our control. Rail users are having to help pick up the pieces from the Hatfield disaster, which they shouldn't have to do."

The spokesman said the company was concerned that passenger numbers would fall as a result of the increases, but said, "We are trying our best to minimise the impact on passengers." He said the Hatfield disaster had cost Virgin more than £100 million in lost revenue, but Railtrack had offered less than half that sum in compensation. A standard open return fare from London to Manchester increased from £150 to £164; Birmingham to London from £80 to £87.50; Exeter to Birmingham from £83 to £91; and Preston to London from £155 to £170. The company froze the cost of Virgin Value tickets and planned to run various promotions offering cut-price fares.

Virgin Trains told rail passengers wanting to take advantage of their half-price ticket offer to be patient. Since the promotion was launched at a cost of £10 million, customers said they couldn't get tickets. They said telephone lines were jammed, the website was too busy and the queues were too long at stations. A Virgin Trains spokesman said the offer was like a sale and said they had been swamped by 367,000 calls as opposed to around 20,000 on a normal day. "We are doing all we can. It is a popular offer," he added. "We would ask people to bear with us and keep trying."

Richard Branson announced the half-price ticket scheme in a bid to lure travellers back on to the trains following the disruption caused by the Hatfield crash and poor weather. The spokesman said all Virgin Trains ticket prices were being dropped by 50% but added monthly and annual ticket prices would remain the same, as these customers had already received compensation.

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