<div>NATIONAL Express was last night fighting to remain in the rail industry, as fears mounted it could be stripped of its two remaining franchises. The operator announced it was walking away from its east coast rail franchise, triggering a shock renationalisation of the Kings Cross-Edinburgh line.<br /><br />The news capped a day of woe for the UK rail industry, culminating with the leaking of a report suggesting that the government&rsquo;s transport policy is in total disarray as a result of the crisis in the public finances. The report suggests that up to &pound;29bn in spending could be cut over a 10-year period. The &pound;16bn Crossrail scheme linking Heathrow to Canary Wharf and Essex could be delayed; a &pound;6bn motorway improvement scheme could be cut; a mooted high-speed rail route may be delayed; and train fares could rise substantially, with the current one per cent plus inflation cap on fares lifted.<br /><br />National Express will be liable for just &pound;72m when it walks away from the franchise, even though it promised to pay &pound;1.4bn over the lifetime&nbsp;of the contract when it bid for the franchise. The firm decided it could no longer afford the agreed payments to the Treasury because its revenue forecasts turned out to be much too optimistic. Transport secretary Lord Adonis described National Express&rsquo; default as &ldquo;regrettable and disappointing&rdquo;, and said he would put the franchise back out to tender in late 2010.<br /><br />But while some in government would like to punish National Express further, the firms&rsquo; lawyers don&rsquo;t believe the government would have the powers to strip it of its other two franchises. Adonis said: &ldquo;Today&rsquo;s events do not represent the failure of the system, but the failure of one company&rdquo;, and added that it was &ldquo;unacceptable to reap rewards of contracts when times are good, only to walk away from them when times are challenging&rdquo;. He appointed Elaine Holt as chief executive-designate of the new east coast line. Richard Bowker confirmed he was quitting National Express and moving to Abu Dhabi.&nbsp;<br /><br />Several firms said they might want to bid for the franchise. &ldquo;We will see what the invitation for tender looks like from the Department of Transport,&rdquo; Virgin said. &ldquo;We did try for the East Coat franchise in 2007 with what we thought was a sensible bid. National Express beat us with the money they would pay to the government but we are seeing the consequences of that now.&rdquo; Meanwhile, FirstGroup, which made an approach for a possible takeover bid of National Express earlier this week, said it too would not rule out bidding for the franchise. Go-Ahead, Stagecoach, Deutsche Bahn and MTR may also be interested. Rail operator Grand Central said: &ldquo;If the DfT re-tenders the franchise, we would look carefully at it&rdquo;. Virgin boss Richard Branson urged the government to use the situation as an opportunity to look again at the franchise system. &ldquo;The DfT must ensure some level of innovation, financial robustness and quality is built in,&rdquo; he said. He added that his Virgin Group had spent &pound;15m on bids for train franchises, saying &ldquo;this cannot be right.&rdquo;</div>