Fraud investigation casts doubt over rail line sell-off

CHRISTIAN WOLMAR

and COLIN BROWN

The future of the privatised London, Tilbury and Southend railway line looked increasingly shaky last night after a manager was suspended and Sir George Young, the Secretary of State for Transport, said in Parliament that the franchise process may have to be reopened.

Ian Burton, the line's retail manager, was suspended on full pay yesterday after the commercial director, Colin Andrews, resigned on Saturday.

Chris Kinchin-Smith, the head of Enterprise Rail, the management-buyout team which made the successful bid, said: "it was not appropriate for Mr Burton to carry out his duties, some involving passenger safety, while at the same time fully assisting with the investigation."

Sir George confirmed to MPs that the option of inviting a fresh round of tenders for the line was being reviewed by the franchising director, Roger Salmon, and would depend on the outcome of the investigations into irregularities in the LTS management.

Sir George's statement, however, appeared to contradict Mr Salmon who, at a ceremony earlier in the day to mark the letting of the two first franchises, South West Trains and Great Western, said: "It was an isolated incident of someone being too clever."

Clare Short, the shadow Transport spokeswoman, said the management team should not be allowed to run the service because, if the allegations were true, the team had been shown to be corrupt.

The letting of the franchise to the management team was halted within hours of the planned transfer on Saturday night by Sir George after it was revealed that managers at the company had moved tickets

from one station to another in order to boost the share of LTS's income.

Tickets issued at Fenchurch Street were sold at Upminster because LTS gets a greater proportion of the revenue from Travelcard sales, which has to be shared with London Transport. Yesterday it emerged that there were plans to extend the scheme to Barking, which would have resulted in a doubling of the extra annual revenue to over pounds 1m.

There were also signs that the City backers of the team - the venture capital groups Gresham Trust and 3i - might withdraw should the investigations being carried out by BR and by the rail regulator, John Swift QC, reveal that the fraud was known about widely within the company. A spokesman for 3i said: "We are waiting for the outcome of the investigations."

"This is the last thing that a company like 3i wants," said a City source. "They are very careful about investing in companies with ethical management teams. They would never, for example, back an individual nursing home through fear that abuse allegations may be raised. And they hate getting their names in the papers over something like this."

British Rail is investigating why the LTS management did not know about the fraud which had netted pounds 45,000 over a six-week period. A BR source told the Independent: "There were monthly meetings to discuss the finances of the company and the figures must have shown that extra revenue was coming in from Travelcard income." He pointed out that at least 30 ticket clerks and other staff must have known of the fraud.

LT managers are extremely worried about the incident because Travelcard tickets are sold throughout the BR network and LT has dealings with all 25 train operating companies. They say similar frauds could arise in other parts of rail network, particularly in London. They point out that revenue allocation between BR and LT was not so important when both organisations were in the public sector but, with privatisation, this is no longer the case.