A court battle against the government is slated to begin Monday, with Stagecoach and others seeking tens of millions of pounds in a case that could have far-reaching implications for the privatized rail system.
Stagecoach sued the Department of Transportation after being disqualified from offering three rail franchises last year for failing to comply with pension liability claims. The DfT is expected to have mismanaged the bidding process with regard to the railway pension system, where the regulator identified a deficit of £ 7.5 billion and was attempting to transfer overly burdensome liability to private companies.
The stakeholders, which also include the offer partners of Stagecoach Virgin and SNCF, and the rival company Arriva, claim that franchise agreements, which make operators responsible for pension liabilities, present an unacceptable level of risk, both through strikes or financial collapse.
Although the DfT has stated that there are mechanisms to mitigate the risk, operators fear that they could have landed with a huge bill to fill the pension deficit, with relatively low margin railway contracts. Existing franchises are already seen as precarious, with warnings that the South West and others may need to be renationalized, following the collapse of the Virgin Trains East Coast franchise operated by Stagecoach in 2018 after the company lost around £ 200 million.
Any change in railway pensions – a final wage regime that remains open to new entrants and payable at the age of 62 – would be politically burdensome, with unions threatening a national strike if the current regime were to be changed. Following earlier warnings of RMT action, the TSSA union wrote last week to form operating companies saying, “The pension system is off the table … or a national rail attack is very much on the agenda.”
If railway operators manage to take legal action in court and their franchise offer is declared illegal, they could get compensation. The sums requested will cover the costs of the offer and, possibly, the loss of earnings in three interested franchises: South East, East Midlands and West Coast.
The result could potentially lead to the declaration of invalidity of the two completed franchising competitions, after being assigned to Abellio in the East Midlands and First-Trenitalia in the West Coast, posing new headaches to the government.
DfT mandarins are expected to be cross-examined, including the highest paid public official, Peter Wilkinson, architect of the recent railway franchises, who stated in 2016 that the government was ready for battle with the unions that the contracts of franchises would have resulted.
A Stagecoach spokesman said: “We believe in a railway system focused on providing the best customer services, it is financially sustainable and has public trust. It is disappointing that we have had to resort to lawsuits; however, we believe there are important issues to be settled by the court and we have a strong case. “
A spokesman for the DfT said: “We do not comment on the legal proceedings. However, we have total confidence in our franchise competition process and will firmly defend decisions made fairly following a thorough and impartial evaluation process. “
The hearing is expected to last about four weeks in the high court, with a ruling to follow later this year.
Railway pensions are a growing problem for industry and the government, although the franchise system is likely to be reformed. The government-commissioned Williams review of the future of the rail sector is expected to be published soon, and President Keith Williams has previously said that the franchise no longer works in its current form.