Ministers have colluded with Britain’s worst-performing train company to conceal the true extent of its failures and exaggerate the compensation package for passengers, according to a passenger watchdog.

First Great Western (FGW) admitted yesterday that it had misled the Department for Transport over the number of trains that it had cancelled.

The true number was so high that the company was in breach of limits set in its franchise agreement in the five months to the end of December.

Under the law governing rail franchises, submitting false figures is punishable by heavy fines. But Ruth Kelly, the Transport Secretary, said yesterday that she had agreed with FGW that it would provide a £29 million package of passenger benefits as an alternative to a “monetary penalty”. She said that the package would be better for passengers than a fine.

However, FGW admitted that the package included “several million pounds” of benefits that it had already announced under another scheme to compensate passengers for running a fifth of its trains late. FGW said that the DfT had been aware that some of the £29 million was not new money. A spokesman said: “They were happy to give us the credit for doing what we had already done.”

Brian Cooke, chairman of London TravelWatch and a board member of Passenger Focus, said that the Government appeared to be protecting FGW because it did not want to jeopardise the £1.1 billion that the company had agreed to pay over its ten-year franchise. He said: “It is amazing that the Government knew about this several months ago but waited until yesterday to inform passengers and the publicly funded passenger watchdogs.

“It shows a worrying level of complicity and raises the question about whether the Government are the right people to be auditing train companies’ performance and statistics.”

The false cancellation figures came to light after FGW, under pressure from angry passengers who organised fares strikes, installed a new senior management team. An FGW spokesman said: “We blew the whistle on ourselves and we have put in place remedial measures to ensure the errors won’t happen again.” He refused to say how many cancellations it had failed to report. However, the DfT said that the figure was 311 over 11 months.

Last month FGW said that it would double the minimum compensation payable for long delays this year. Yesterday the company said that it would offer 50 per cent more than the minimum for delays incurred next year. FGW also agreed to offer 500,000 additional off-peak tickets at the cheapest price. A spokesman admitted that passengers were likely to have to book in advance to get the tickets. He refused to say how many of the cheapest tickets FGW had already been planning to offer.

The company has agreed to hire ten extra carriages from May to relieve overcrowding on the Portsmouth to Cardiff line and to employ more train drivers to reduce cancellations arising from staff shortages.

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