YORK-BASED Virgin Trains East Coast might have survived if the Department for Transport had assessed its bid properly, MPs have found.

The department encouraged overbidding and failed to sufficiently stress-test the proposal submitted by the business, says a report by the Commons’ Transport Select Committee.

The franchise to run services on the East Coast Main Line between London and Edinburgh via York failed because the partnership between Stagecoach and Virgin ran out of money after failing to hit “over-optimistic” revenue targets, MPs concluded.

Some £3.3 billion was due to be paid to the Government by the operator over eight years from March 2015, but the contract was ended in June as revenue and passenger growth anticipated at the time of the bid failed to materialise.

The committee said franchises should be able to withstand “normal fluctuations in the economic cycle", adding: “The fact that this franchise did not suggests that Stagecoach and Virgin built very little resilience into their bid.”

The MPs described the private firms as “naive” but insisted that the DfT must “also take responsibility for not managing the bid process effectively”.

Stagecoach said that in formulating its East Coast bid it "used the same bold, ambitious and meticulous approach which delivered strong success in the past", adding: “As the committee makes absolutely clear, there was no incentive to deliberately overbid and there was no taxpayer bailout in the unfortunate premature end to the contract.”