Souter attacks ministers over 'chaotic' dealings on rail cash

Brian Souter, chief executive of Stagecoach, is at odds with Westminster over support for South Western Trains.

BRIAN Souter yesterday attacked the government's "chaotic" and "inconsistent" behaviour over rail franchise subsidies, ratcheting up the dispute with ministers which he claims could cost his company up to £200 million.

The Stagecoach chief executive's outburst against the Department for Transport (DfT) was the latest escalation of the company's battle with ministers over revenue support for its South Western Trains (SWT) business.

Souter's broadside, delivered on the day Stagecoach posted a 12.6 per cent rise in underlying annual profits to £196.4m (£174.4m), came as he claimed that Stagecoach had a strong case in law against the government.

The main point of contention between the Perth-based firm and the government is a deal in which the taxpayer pays a proportion of a franchisee's losses if it fails to hit revenue targets.

Stagecoach believes the existing contract with the government entitles it to revenue support for its key SWT commuter franchise out of London Waterloo, calculated from April 2010.

But the DfT believes the start date for the calculation should be February 2011.

A bullish Souter yesterday maintained that rather than take the matter to swift arbitration the government now wanted to have it heard in the High Court, but said that he believed his group had a strong case.

Speaking as Stagecoach announced rail profits fell nearly 6 per cent to £55.7m in the year to end-April, he said: "This is bizarre. We are beginning to wonder whether there are competence issues. It's very chaotic."

Souter claimed that the company was not seeking to renegotiate the terms of its franchise, but wanted the government to "honour the terms" of a previous agreement that he claimed made clear revenue support should kick in from April 2010.

If it loses the court case Stagecoach says the rail division would sink into the red in the year to April 2011 – before becoming profitable again in 2012.

The revenue support dispute has financial implications of between £70m and £100m, Stagecoach said yesterday.

There is also a separate disagreement over whether car parking revenues should be included in the calculations of revenue support, worth about £15m a year to the company.

And there is a claim for between £40m and £80m by Stagecoach against the DfL because of delays to a new Smartcard technology system that would allow London Oyster tube tickets to be used on overground trains.

Souter promised that the company remained committed to the railway, but that after what he called repeated "U-turns" by the DfT on the issues "you wonder are they dealing with us in good faith? What is the game here?"

He added: "If a private company messed us about in this way we would cut all ties with them."

Last night a DfT spokesman hit back at Souter, pointing out that there were large sums of money at stake.

The spokesman said: "There are contractual issues in dispute. As the comments made by Stagecoach reveal, there are large sums of money involved and the remarks by the company should be seen in the light of this fact.

"The department always acts professionally, openly and honestly and will continue to do so."

Yesterday's figures showed that Stagecoach's 49 per cent share of profits at its Virgin Rail joint venture was £42.7m (£41.9m). Profits at the UK bus division climbed 14 per cent to £125.6m.

And despite the problems with the rail business, Stagecoach's shares closed at 127.75p, up 10p or 8.5 per cent yesterday.

The group revealed that the full-year dividend rises 11 per cent to 6p, via a 4.2p final. Souter and his sister Ann Gloag's 26 per cent stake gives them a final divi payout of £7.8m, having taken £3.4m at the interim stage.