The crash on Britain’s fastest railway could clearly be seen coming. The Great North Eastern Railway, operating trains over the high-speed East Coast Main Line from London to Edinburgh, is to be deprived of its franchise only a year after winning a ten-year extension. But almost from the moment it was given the green signal by the Office of Rail Regulation, GNER ran into difficulties. It had overcommitted, offering to pay a franchise premium to the Government of £1.3 billion over the decade — a huge sum that could be raised only if revenue grew by about 10 per cent a year. That always looked overoptimistic; after the July 2005 bombings in London it was unachievable. Passenger numbers were hard hit. Earnings stalled. At the same time, power costs rose sharply and Network Rail compensation payments for post-Hatfield disruption declined. Meanwhile, Sea Containers, GNER’s parent company, sought protection from bankruptcy.

GNER’s troubles were not entirely of its own making. The Government, encouraged perhaps by the success of Hull Trains, which runs services to that city in competition with GNER on most of the route, agreed to allow a new service to Sunderland. This would cut further into GNER’s market. GNER sued but lost. The Government allowed the ruling to stand. A crash was all but inevitable.

Douglas Alexander, the Transport Secretary, had refused to alter the terms of the crippling franchise. He has now backtracked. Public money will not be available to bail out GNER directly — nor, under the clear terms of the franchise system, should it be. Although Britain’s private train companies are subject to regulation of fares, routes and service provision, they are not guaranteed against commercial failure. But by relieving the company of its future premium payments and cancelling the penalty clause for defaulting, is it not doing exactly this? The example will be watched closely by other franchises forced to pay large sums to the Treasury.

Passengers will nevertheless be bemused. GNER was one of the most popular and successful rail operators, which brought back something of the style, elegance and pride of the prenationalisation age. Why should it find it impossible, when passenger numbers are reaching record levels, to make enough money to survive? More importantly, why should each of the 17 million passengers a year pay the Treasury £6 out of every ticket to subsidise loss-making rural lines in Wales? The GNER premium will not even be used to re-engineer the worn-out overhead catenary, which was installed on the cheap by British Rail and needs substantial modification.

The Government seems unclear on what it should now do. It has given GNER 18 months to continue operating and says it will look at its performance. Whatever happens, however, Treasury revenue from the line will fall short by millions of pounds — a sum that the taxpayer must find. And when the franchise is put out to tender, will GNER be allowed to bid again? The announcement by Mr Alexander, the Transport Secretary, has focused attention on the wholly unsatisfactory way that franchises are awarded. The railways, integral to social and economic planning, cannot be treated like an order for the office fax paper. They are still essentially in public hands, operated under a franchise system. GNER has shown that the Government, overwhelmed with an illogical and burdensome regulatory framework, has still not understood how to make the trains run on time.