U-turn over West Coast Mainline trains deal

It comes after the discovery of significant flaws in the way the franchise process was conducted, Transport Secretary Patrick McLoughlin said.

The decision means the Department for Transport will no longer be awarding a franchise contract to FirstGroup to run the West Coast Main Line when the current franchise expires in December.

FirstGroup was due to take over the running of the London to Scotland line from Virgin Rail after being awarded the contract by the Department for Transport in August. But Virgin boss Sir Richard Branson launched a High Court challenge against the decision.

The department said it would no longer be contesting the judicial review sought by Virgin, whose chief executive Tony Collins lives in Sedgley.

It comes despite the department's robust defence of the bidding process in August.

FirstGroup's shares were 15 per cent down in early trading today. Mr McLoughlin, a former miner and Cannock Chase councillor, has also ordered two independent reviews into the competition process.

The West Coast Main Line sees trains run through Stafford, Wolverhampton, Sandwell and Dudley and Birmingham.

Under the franchise Virgin is responsible for the running of Stafford and Wolverhampton rail stations. The flaws uncovered by the department relate to the way the procurement was conducted by officials, it said. Government staff are also set to be suspended while investigations are conducted.

The Government said it was "resolving urgently" the future arrangements for operation of the West Coast service – which was due to be handed over to FirstGroup on December 9.

Mr McLoughlin said: "I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.

"A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held."

He said services would continue to run with the same drivers, staff and timetables while the bidding process was re-run.

It is expected the Government will have to temporarily take over the the railway, as it was forced to do on the East Coast Main Line in 2009 when National Express ran into problems.

Labour leader Ed Miliband described the West Coast Main Line decision as a "fiasco".

He said: "When you look at the latest fiasco with the West Coast Main Line – another Government screw-up, another Government mistake, another case of them blaming someone else, apparently they are saying it is the fault of their civil servants – I think competence is an issue."