The Government was last night accused of putting money before passengers after rail firm GNER lost its franchise to run the East Coast Main Line.
Crippling financial problems caused the company to tell ministers it could no longer run the 10-year franchise, for which it agreed to pay a £1.3bn premium.
Yesterday the Department for Transport announced it will invite fresh bids to operate the line after refusing to re-negotiate its deal with GNER.
Last night, GNER told The Journal that it may yet seek to reacquire the franchise by making a fresh offer - dependent on the financial fortunes of its parent company, Sea Containers.
The company, which has operated the route since 1996, only won the renewed franchise last year.
It admitted yesterday its bid was "bullish", but blamed the London bombings, rising energy costs and the decision to allow a rival firm to run trains from Sunderland to London for its difficulties.
Rail campaigners last night accused the Government of being too greedy in accepting GNER's offer of massive premium payments which proved unsustainable.
GNER will now operate the line under a management contract, through which the Department for Transport will get the bulk of its profits and bear the financial risks. The new franchise is expected to start late next year.
GNER chairman Bob Mackenzie said: "While we are not in breach of the current franchise agreement, GNER will not be able to meet the significant increase in franchise premium obligations due from May 2007.
"We would have preferred a renegotiation of the current contract, but that was not available. The management agreement is therefore a sensible solution for all parties."
Transport Secretary Douglas Alexander said: "The Government made it clear that rail operators that fall into financial difficulty should expect to surrender the franchise and not receive financial support. To do otherwise could set the precedent that we are willing to bail out operators at extra cost to the taxpayer."
But the Government was blamed for the problems last night through its system of "auctioning" off franchises.
Martin Murphy, chairman of pressure group Railfuture North-East, praised GNER's service, and described it as a "sad day for passengers".
But he added: "It is, I believe, a consequence of the Government's obsession with maximising financial return rather than looking at what's best for passengers. I trust it will not be repeated in the re-franchising."
Berwick Liberal Democrat MP Alan Beith said: "When the Government pushes the auction method too far, you get to a point where it's unsustainable."
But he said he hoped GNER would win the re-franchising. "They did overbid, but they were in fierce competition, and very committed to continuing the service," he added.
GNER could enter a bid for the new franchise but admitted last night this would be impossible until its parent company resolved its financial difficulties.
GNER spokesman John Gelson said: "As it stands today, GNER technically cannot make a bid but this position could change in the next 15 months. Our parent company Sea Containers aren't in a position today but may well decide to do so in the future."
Newcastle East and Wallsend Labour MP Nick Brown said: "They did put in a very high bid and in retrospect probably paid too much, but things changed after the bid was in.
"GNER provide a good service and I hope they're able to get through their present difficulties and be able to bid to continue to run the service."
Page 2: Rival refuses to accept the blame for problems
Rival refuses to accept the blame for problems
Rival rail company Grand Central last night dismissed claims its new Sunderland to London service is to blame for GNER's problems.
The company will start running three trains a day in May after winning a licence for the route despite fierce opposition from GNER.
The franchise holder claimed it was unfair competition, as it would take revenue from the route but not pay the same fees for using the track.
GNER yesterday claimed Grand Central's services were partly to blame for its financial troubles which caused it to give up its East Coast franchise.
Chairman Bob Mackenzie said Grand Central "will compete for our passengers calling at our stations on the same line, but will not have the same charges imposed upon them".
But Grand Central operations director Sean English said: "We haven't even operated a train yet, so how they can suggest we're affecting their revenues at this stage is beyond me - but they have been making outlandish comments for several months now.
"They've been in trouble for a while so what's happened today is no surprise to us. But how they can apportion some of that blame to us I find incredible."
Good service at a stiff price
Business lobby groups were yesterday agreed that service must come first on the East Coast Main Line, at the expense of the Government earning a big premium.
The North East Chamber of Commerce (NECC), which backed GNER last time the franchise was up for tender, said it was concerned that re-franchising the line would result in a drop in quality.
Rachel Spence, NECC transport spokesperson, said: "This is an important link route south to London and north to Edinburgh and Glasgow which is well used by people in this region.
"If the new franchise comes down to a choice between a large subsidy to Government and providing excellent service we would strongly urge the latter."
Colin Stratton, regional chairman of the Federation of Small Businesses, said: "The size of the premium the SRA got was, shall we say, a stealth tax - it was a nice earner for the Government. GNER clearly did over-egg something somewhere, but there was clearly an almighty stuff-up."
Mr Stratton said a good quality train service was vital to business people.
He said: "You need reliability - with GNER, in all the times I have travelled with them, I've only twice been late.
"A restaurant car is needed for business people, so you can eat and work. Comfort is also important, and to be able to work, with an internet connection. The thing that does disappoint me currently is the price structure. That needs to be addressed."
Sarah Green, regional director of the CBI in the North-East, said: "I think business will miss GNER as they have offered a good, reliable service.
"Going forward, what we need to see is regular, punctual services, and good quality provision internally. If you're commuting on the train to London, you have a six-hour round trip, and you need to be able to work comfortably, and have a dining car too.
"Also, the fastest GNER trains get to London in two hours and 40 minutes - that is superb, and it would be good to see more of those fast trains.
"The main thing though is a committed timetable - consistency is the key."
What next for the east cost main line?
GNER will continue to operate East Coast Main Line trains despite yesterday's decision to remove the firm as franchise holder.
However, it will now do so under a management contract.
That means the company will be paid a fee based on its performance. But the Department of Transport will be responsible for the bulk of the profits and risks from the line.
GNER will also continue with plans for station improvements and train refurbishment.
However, a new franchise for the line is expected to start in late autumn next year.
The Department for Transport yesterday issued a consultation document on the franchise, and advertised for expressions of interest - indicating yesterday's decision had been prepared for well in advance.
Shortlisted bidders will be announced in February, and the final tender document will be issued to them in March.
The deadline for submitting bids will be June, with the successful firm announced later next summer, ready to start the franchise by the end of the year.