Chris Garnett, who resigned as chief executive of Great North Eastern Railway (GNER) last month, said franchises will 'self-destruct' under the weight of agreements to make huge premium payments to the British government.

Garnett also accused the Department for Transport (DfT) of abandoning investment in rail in order to meet Treasury cost-cutting targets.

'The one thing this lot won't do is spend any money on the railways,' Garnett said in an interview with industry magazine Rail.

GNER, which has run intercity trains from London King's Cross to Scotland since 1997, has struggled to meet payments totaling around 1.3 bln stg that it agreed when it won the right to run the franchise for a further ten years.

The franchise is facing lower-than-expected passenger revenues due to disruption from the London bombings in 2005, increased power charges and a prospective challenge from rival Grand Central, which controversially has been allowed to start competing services on the UK's East Coast Main Line (ECML).

GNER has also been hit by the financial problems plaguing parent group Sea Containers, which is struggling with 610 mln usd of debt.

GNER and SeaCo have reportedly threatened to abandon the franchise unless the UK's Department for Transport (DfT) reduces the premium payments.

Garnett told Rail that the franchising market would face growing pressure as franchise bidders put in offers for contracts on over-tight margins.

'It's going to take some pretty spectacular failures, I think, before people move the margins, because we're all bidding against each other,' the magazine quoted Garnett as saying.

'The market will self-destruct as bidders bid to win on ever-tighter margins.

'It's not sustainable and that's where it's tied straight into government, because when it goes wrong, it's going to come right back to the DfT.'

Garnett said the DfT and the Treasury now have too much control of the rail industry and are putting cost before investment and strategic vision.

'The department puts out a specification and that is going to be the minimum it thinks it can get away with and cost the least,' Garnett said.

'And so anything that might add capacity or anything that might take the railways forward, has to be absolutely dragged out of the DfT. So no bidder puts anything in a bid that enhances the railway if it isn't self-funding because they'll lose.

'If we were running a decent railway, that's what we would be doing.'

Garnett also said franchisees were now having to run trains slower to meet government punctuality targets and that plans to invest in the ECML had fallen apart.

Bus and rail group Stagecoach Group PLC emerged last week as the latest victor in the franchising process when it beat rivals FirstGroup PLC, Arriva PLC and a joint venture between National Express Group PLC and Hong Kong-based MTR Corporation to run South West Trains services from London Waterloo for a further 10 years.

The contract involved an agreement to pay 1.2 bln stg in premium payments to the Treasury.