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A train company which cancelled 1,000 services a week last summer has been fined £2m, the largest such penalty since the industry's privatisation, it was confirmed yesterday.

The Strategic Rail Authority (SRA), which announced the penalty on Arriva Trains Northern last October pending consultation, confirmed it yesterday. It also said it would fine the firm £5,000 per month for each driver not recruited in line with targets.

The SRA had intended that Arriva recruit from other operators, but after representations from the rail industry during the consultation, it ordered the firm to train its own drivers. The firm admitted it had failed to recruit enough drivers to run even the minimum acceptable service, leading to last year's problems. The SRA ordered the company to display posters detailing its poor service and the punishment at all its stations. Passenger groups, MPs and local authorities were consulted before payment was demanded.

The company had been allowed to continue replacing its cancelled trains with buses until the end of February, after the authority accepted it would take several months for drivers to be trained. The authority has warned, however, that unless performance improves, Arriva could lose its franchise.

Arriva accepts there is a nationwide driver shortage and that the industry needs a further 1,000 drivers on top of the 9,000 employed. Salaries range from about £23,000 for a regional operator to £35,000 for a long-distance company. Arriva, which runs trains linking cities in the North-east, has been set a target of hiring 629 drivers by the beginning of December and 682 by July next year.

Gary Backler, the SRA's executive director for regional networks, said Arriva had made improvements. "Today's enforcement action will keep the management's mind focused on completing the job," he said.