The government faced calls to re-examine its system for awarding rail franchises after signalling it would temporarily renationalise passenger services run by National Express on the East Coast Main Line.

The government faced calls to re-examine its system for awarding rail franchises after signalling it would temporarily renationalise passenger services run by National Express on the East Coast Main Line.

Its emergency intervention followed an announcement by National Express that it could no longer afford £1.4bn premium payments due over eight years to the Department for Transport, because of falling passenger growth, potentially leaving taxpayers to shoulder the £20m cost of the downturn on the London to Scotland route.

In a statement to the City, the company said it would continue to operate services but was expected to default on franchise commitments later this year. It also announced that Richard Bowker, who oversaw the NXEC franchise deal, would resign as chief executive of the group in August.

Virgin Trains, which runs services on the West Coast Main Line, and First Group, holder of the ScotRail franchise, both confirmed to The Herald yesterday that they would be among those interested in bidding for the route when it is re-tendered in 2010.

Trade unions welcomed the move, urging the government to introduce permanent nationalisation on the East Coast route and strip National Express of its remaining rail franchises in East Anglia.

Bob Crow, general secretary of the RMT, said nationalisation "should be a long-term solution to the chaos privatisation has brought to the UK's most lucrative rail franchise".

Sir Richard Branson, founder of Virgin Group, called for a re-examination of the process to ensure "innovation, financial robustness and quality" were built into it.

He added: "We have been the under-bidder on three different occasions, spent £15m in the process and lost to people who have put in unrealistic bids. This cannot be right."