THE Government will be forced to step in and dictate the future of Britain’s flagship rail franchise, according to its former chief executive, who resigned suddenly last month.

Christopher Garnett, who ran GNER after its inception a decade ago, said that financial problems on the London-to- Edinburgh franchise were so severe that it was no longer sustainable under the terms agreed last year.

GNER, owned by Sea Containers, the shipping and rail group that is in breach of its banking covenants, began a new ten-year contract in April last year. It agreed to pay the Government £1.3 billion over the course of the franchise, which is believed to have been at least £300 million more than the next-highest bidder was prepared to pay.

Sea Containers admitted last month that revenue growth in the first year of the new GNER franchise, at 3.3 per cent, had been only a third of what it had expected. It blamed the July 7 bombings for deterring travellers to London, a big increase in electricity costs for running trains, lower-than-predicted growth in GDP and competition from its rival operator Grand Central.

Mr Garnett told Rail magazine: “If you ask me where GNER is going to be in a year’s time, I really don’t know. The only people who will actually decide that will be the Government.” Other train companies were also making bids with very low margins that could prove unsustainable, he said. Bidding teams were under pressure to win franchises.

“Franchise bidding has got too tight. The margins are too slender, but the trouble is every train company says ‘You’ve got to win it’ — and bid accordingly. We had to win GNER.

“It’s going to take some pretty spectacular failures, I think, before people move the margins. The market will selfdestruct, as bidders bid to win on ever-tighter margins. When it goes wrong, it’s going to come right back to the Department for Transport.”

GNER distanced itself from Mr Garnett’s comments. It said: “That’s Christopher’s view, not the company’s view.” However, it said that GNER needed to discuss its lower-than-expected revenue growth with the department.

Times Recommends

• Lloyds TSB wins vote for HBOS merger
• Bank of England discussed 2% rate cut
• Woolworths dives as it confirms takeover talks