Britain’s worst-performing train company tried to silence the official passenger watchdog by threatening to sue it for libel for making a complaint about its poor performance.

London TravelWatch had written to Tom Harris, the railways minister, to ask whether First Great Western (FGW) was in breach of its franchise agreement because almost a third of its commuter trains in the Thames Valley were late.

FGW has a target in its contract of 92 per cent of trains on time but managed only 68.3 per cent on its peak services. Its long-distance services are also the least punctual in the industry, with only 75.6 per cent on time compared with a national average of 85.2 per cent.

The letter stated that the number of complaints from passengers received by the watchdog had more than doubled and that overcrowding was more than twice as bad as for the average operator in London and the South East.

Brian Cooke, chairman of London TravelWatch, held a series of meetings over several months with FGW to discuss its performance and had repeatedly urged it to take action to improve its service.

When the situation failed to improve, Mr Cooke wrote to the minister setting out the problems and telling him that the watchdog’s board had unanimously passed a resolution calling on the Department for Transport (DfT) to “consider terminating the franchise”.

Mr Cooke gave a copy of the letter to The Times and also sent one to Moir Lockhead, the chief executive of First Group, FGW’s parent company.

Mr Lockhead passed it to the company’s lawyers, Slaughter & May. They wrote to London TravelWatch demanding that it withdraw the letter, which they described as “defamatory”. They also ordered Mr Cooke to reveal the names of everyone who had received a copy.

When Mr Cooke refused to back down, Slaughter & May wrote again, saying: “Your continued failure to address and remedy the damage being caused by your defamatory remarks is plainly unacceptable . . . Our client feels compelled to reserve its position against you.”

The Government knew about First Great Western’s attempt to silence the watchdog, but took no action. Mr Harris has acknowledged Mr Cooke’s letter but has yet to answer any of the questions that it contains despite receiving it more than three weeks ago.

First Group, Britain’s biggest bus and train operator, has formed close links with senior Labour figures. It employs Alastair Campbell, Tony Blair’s former spokesman, to advise on “strategic communications” and has engaged David Blunkett, the former Home Secretary, to chair a commission that is expected to give strong backing to the company’s yellow school buses. First Group has refused to say how much the two are paid.

The Government’s rail budget is highly dependent on First making almost £2 billion in payments over the next ten years for the right to operate two franchises, FGW and First Capital Connect. The DfT can take enforcement action against train companies that breach their franchise agreements by failing to deliver minimum service levels. But it is unclear exactly what would constitute a breach.

Mr Cooke’s letter said: “If a breach has occurred, appropriate sanctions should be applied, and this should be stated publicly. If it has not, then the travelling public at least deserves a clear explanation of how much worse things will be allowed to become before the operator feels any pain.”

Mr Cooke told The Times that London TravelWatch had a duty to alert the Government to potential franchise breaches. “It was outrageous to threaten to sue us in order to keep us silent when we were only performing our statutory duty in reporting these matters to the Secretary of State,” he said.

“We were surprised that the DfT did not attempt to dissuade First from bullying the public watchdog.”

Yesterday a First Group spokesman said: “We had made clear to London Travelwatch repeatedly that certain things they were saying had no basis. We are within our rights to defend our reputation.”

A DfT spokesman said: “FGW’s performance has not been satisfactory for the passenger. Joint action plans are in place between Network Rail and FGW to address this.”

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