Warning to rail operators

Ministers have warned they would temporarily renationalise some of Britain's rail network rather than allow cash-strapped operators to slash services, The Independent has learnt.

The credit crunch has hit some rail operators hard: franchises bought in times of booming economic growth now offer much lower returns. It had been thought some operators would have to alter the terms of their franchise agreements, including cuts to services.

But government sources said that two or three franchises are being closely watched by the Department for Transport (DfT) and would be placed in public control while a new franchise-holder was found, should the current operators fail to fulfil their service commitments. A government source said: "We are not talking about renegotiating the franchises. Passenger numbers are down and we are not unsympathetic to rail companies, but it is not up for discussion."

Five rail operators, which have not been named, have been given a "red light" by DfT officials – a warning that they will struggle to meet the conditions of their franchise agreements.

The Transport minister Lord Adonis said no service reductions would be permitted. From next year all regulated fare increases would be capped at 1 per cent above the Retail Price Index. Previously, operators had been able to raise some fares by as much as 10 per cent.