TAXPAYERS have been “short-changed” by up to £2 billion through the government decision to let Richard Branson’s failing East Coast rail franchise off the hook early, Labour warned yesterday.

Last November, Chris Grayling announced that Virgin Trains East Coast’s contract would be terminated three years ahead of schedule, sparing the privateer the embarrassment of being forced to hand the keys back to the government.

The Transport Secretary said a new East Coast Partnership would take on responsibility for trains and track operations on the route in 2020.

Mr Branson’s Virgin had originally agreed to pay the government £3.3bn to run the service between 2017 and 2023.

But the tycoon said yesterday that Virgin and Stagecoach, its partner in the franchise, had lost “well over £100 million in total.”

Shadow transport secretary Andy McDonald said: “This bailout is yet another example of the Tories defending profiteering train companies and the rich elite at the expense of the British public who pay for and use our rail services.”

Stagecoach shares soared in response to the news that the franchise was ending early — at one point rising by 13 per cent.