Ministers are ready to seize control of the railways after more than a quarter of a century of private ownership.
Franchises launched under John Major in the mid-Nineties will be ripped up and replaced by fixed-fee contracts from April, Whitehall proposals seen by The Telegraph reveal.
Train operators such as South Western Railway and c2c, serving commuters in the South East, have been supported with more than £3.5bn in taxpayer funding since the pandemic triggered a collapse in passenger numbers of as much as 95pc.
The emergency measures, implemented in March and due to expire next Sunday, guarantee the franchises a fixed profit but is deemed “unsustainable going forwards given the economic position and significant pressure on public finances”, official documents say.
Grant Shapps, the Transport Secretary, is now expected to make an announcement in the coming days on a long-term solution that will permanently abandon franchises. They will be replaced with “concession” agreements that are similar to outsourcing contracts widely used by the NHS and schools.
It means the Government will bear ultimate responsibility for operations. Fares will be collected by the Exchequer, which will pay train firms a fee.
Between Sept 20 and next April, new “conditional” agreements, called ERMAs, will create a “bridge” to the permanent changes, according to the plans. They will be confirmed by Dec 13, with operators forced to sign up to a “built in franchise termination” clause – marking a permanent end to private control of the railways from April 2021.
If operators refuse to accept new terms, the Government’s own operator, which already runs the east coast and Northern lines, is primed to step in.
Whitehall officials and train bosses have been locked in confidential talks for most of the summer to hammer out a deal for the future of the railways.
Operators have estimated that passenger numbers will only return to 90pc of pre-Covid levels in five years’ time, rendering previous franchise agreements economically unviable.
Ministers are desperate to limit the cost to the taxpayer of keeping services running and not prop up otherwise failing franchisees. Industry sources said that this has led to unappealing offers, some of which could lead to operators racking up fresh losses, sparking anger from train bosses during increasingly fraught negotiations.
Keith Williams, chairman of Royal Mail and ex-BA boss, was hired two years ago to conduct the biggest review of the railways since privatisation. Draft conclusions, reported by The Telegraph in February, proposed a cap on profits and an end to franchising. These are understood to have been blocked by the Treasury prior to the pandemic.
One senior industry source said: “They are using the current situation to bring in what they wanted all along.”
A spokesman for the Government declined to comment.