Failing train companies were given a stark warning by the Government to run the trains on time or lose their franchise.
John Reid, the new Transport minister, told an audience that included some of the top figures in the industry: "The current level of performance is not acceptable and it cannot continue. Passengers and taxpayers are not getting a fair deal on the railways. Improving the level of service is a top priority."
He warned that the performance of the train operators would be a "key criterion" when it came to deciding who won the franchises, which start to come up for renewal in 2003.
He singled out companies that just managed to meet their contractual commitments but which treated passenger complaints as an "unnecessary nuisance" and which cut costs at the expense of passengers.
"They will not have a long -term future in this industry," Dr Reid warned. "I cannot be any plainer in what I am saying. When it comes to the situation when these assessments are made, let no one say, `You did not tell us that'."
In a separate move John Swift, the rail regulator, announced he is to quit his post at the end of his five-year term at the end of November, ending months of speculation that the Government was considering sacking him. He said his decision followed talks with John Prescott, the Secretary of State for Transport, yesterday.
Mr Prescott had "made clear to me that he wishes to make a new appointment for the whole term of five years", Mr Swift said. "I said that I would not wish to serve the full five-year term."
It is understood, however, that Mr Swift was seen as too soft on Railtrack, which has seen its share price and profits surge since privatisation, and on the rolling stock companies, whose managers have made a small fortune.
The first task of the new regulator will be to review the charges paid to Railtrack by the train operating companies. These form 90 per cent of Railtrack's revenues.
Dr Reid's comments and the news of Mr Swift's decision to quit came after a series of statistics showing a marked fall in standards in the first full year of privatisation.
The Government is understood to be considering plans to give the new regulator powers to levy instant fines of pounds 1m when trains are repeatedly cancelled or late.
Dr Reid did little to dampen speculation that Mr Prescott had failed to win a promise from Tony Blair that his plans for a powerful Strategic Rail Authority would be in the Queen's Speech in November.