When National Express outbid competitors for the rail franchise on the east coast main line between London and Edinburgh, in August 2007, passenger numbers were growing and the economic outlook was rosy. Even so, some commentators thought the £1.4bn price tag for the remaining seven years of the franchise too high. Less than two years later, the projected growth of 9% a year has been reduced to 1% and will decrease as unemployment increases, the operator is pulling out of the contract and the taxpayer must pick up the bill.

When National Express outbid competitors for the rail franchise on the east coast main line between London and Edinburgh, in August 2007, passenger numbers were growing and the economic outlook was rosy. Even so, some commentators thought the £1.4bn price tag for the remaining seven years of the franchise too high. Less than two years later, the projected growth of 9% a year has been reduced to 1% and will decrease as unemployment increases, the operator is pulling out of the contract and the taxpayer must pick up the bill.

As the latest unhappy episode in the troubled history of the privatisation of Britain's railways, and the second failure on the easy coast main line after GNER failed to meet payments as a result of its parent company's financial problems, it must call into question once again the effectiveness and the accountability of the franchise system.

The taxpayer will agree with the statement by Lord Adonis, the transport minister: "It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging." There will be considerable scepticism, however, over his argument that the reneging of National Express on the franchise "does not represent the failure of the system but the failure of one company". The test will be what sanctions operate. The government is exploring whether it will have the right to terminate the other franchises operated by National Express in East Anglia and the C2C London commuter routes on the grounds of "cross-default" - legal complexities hinge on how separate these entities are - but National Express will almost certainly forfeit being able to bid for future franchises.

The temporary renationalisation of the east coast main line is an emergency measure, but that does offer an opportunity, lacking since the privatisation of the railway system, for a controlled experiment on the advantages and disadvantages of the present arrangements. The suggestion from Liberal Democrat transport spokesman Norman Baker, that the publicly-run company which is to replace National Express on the east coast main line should act as a comparator, should not be dismissed, but used as a test bed for how the service can be improved, although whether that should be on a permanent basis is a separate issue.

It is time to re-examine if the franchise system encourages would-be operators to make bids on optimistic forecasts to see off the competition and is a contributory factor to Britain having higher rail fares than in most of Europe (despite similar subsidy levels). That deters passengers who need to spend some time tracking down the best deals. Yet the train is a popular form of transport when it is competitive. Until the recession, passenger numbers were growing.

Public transport is a vital part of the economic and social infrastructure; a reliable railway network which provides efficient links at competitive prices has the capacity to switch travel from both road and air and thus to play a significant role in meeting climate change targets. That requires investment, and the most serious flaw in the franchise system is that the length of the contracts discourages investment by the operators. That needs to change.