Transport secretary Patrick McLoughlin cancelled the competition, which controversially saw the route awarded to First from December. The process will now have to be rerun, with Virgin potentially keeping the franchise.
First was handed the London to Scotland route in August, a decision that provoked Branson into launching legal proceedings.
Last night, McLoughlin ordered two reviews into the Department for Transport’s workings, and said staff at the department will be suspended while the investigations take place.
He also announced that all other current franchise competitions would be put on hold pending the review into how routes are awarded
McLoughlin said: “I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.”
In a trading update before last night’s announcement, First said it was on track to take over the West Coast route, and that its overall business is performing in line with expectations for the six months to 30 September, with growth of seven per cent expected in the financial year.