Transport Secretary Lord Adonis said he had set up a publicly-owned company which will take over the line, probably at the end of 2009.

He added that the Government may terminate National Express's other rail franchises - East Anglia and the London to Tilbury and Southern franchise c2c.

"It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging."

The East Coast operation was expected to lose £20m in the first six months of this year.