Rail operator National Express should be stripped of its remaining franchises after abandoning the loss-making East Coast Main Line, MPs have demanded.
They rounded on the Edgbaston-based business after it announced it would not pour any more money into the route, forcing the Government to nationalise it.
In a scathing report, the Commons Transport Committee said it was “unacceptable” for the business to walk away from a loss-making route but continue to operate two profitable services.
And they accused the business of “sharp practice” in using a legal instrument to try to hold on to its remaining routes.
National Express had agreed to pay £1.4 billion for its seven-year East Coast franchise.
But it announced earlier this month that it was defaulting on the agreement because the route, which runs from London to Edinburgh via Newcastle, was making a loss.
In theory, rail operators which default on one franchise should lose all of them, under arrangements introduced by the Government with the specific intention of preventing firms from clinging on to profitable routes.
However, this may not apply to National Express because instead of running the East Coast Main Line directly, it set up a separate business called NXEC Trains, created specifically to manage the franchise.
The use of a separate firm, known as a special purpose vehicle, means National Express may be allowed to keep its two other franchises, National Express East Anglia and c2c, which runs services in Greater London and Essex.
Transport Secretary Lord Adonis has hinted he may use his powers to remove the franchises anyway, but National Express has warned it will resist any such moves, raising the prospect of a showdown in the High Court.
The report, which follows a Commons inquiry into the whole rail franchising system, warns: “On 1 July, the Secretary of State indicated that the Government might invoke the cross-default provision to revoke National Express’ two other franchise contracts as well as the East Coast Main Line.
“The aim of the cross-default provision is to ensure that franchise holders cannot choose simply to hand back the keys to franchises in trouble whilst retaining their profitable services.
“It has subsequently emerged that the use of a ‘special purpose vehicle’ by National Express could prevent the Government from using the cross default mechanism.
“We believe it is unacceptable that National Express may be able to cling on to its remaining franchises through the use of a ‘special purpose vehicle’. The misuse of legal instruments, such as ‘special purpose vehicles’, to insulate parent companies from potential losses and legal problems as a result of the failure of subsidiaries is sharp practice.”
The MPs claimed that the collapse of the East Coast Main Line franchise, which came three years after another operator, GNER, also pulled out of running the East Coast Main Line, demonstrated the need for fundamental reform to the franchise system.
Their report concluded that the above-inflation fare increases, service reductions and staff cuts seen in 2009 were unacceptable practices which the Government should put a stop to.
Committee Chairman Louise Ellman said: “We support the Secretary of State’s decision to take back responsibility for the East Coast Main Line franchise but the failure of two major contracts in three years is evidence of serious underlying problems with the current franchising model.
“We need to get these problems sorted out as a matter of urgency.
“Many more franchises may be struggling to meet their financial obligations, without our knowledge. More failures in the franchise system will cost a lot of public money and we are deeply concerned about
the impact this could have on the funding for other transport projects.”
A National Express spokesperson said, “The National Express Group has received clear and detailed advice from leading legal Counsel, and as such we are confident that the Secretary of State will not be permitted to execute cross default contained in the franchise agreements for East Anglia or c2c.”