Recent large fare increases and plans for further rises will be discussed at a meeting next month between the rail regulator and the Department for Transport.

Bill Emery, ORR chief executive, will raise concerns that passengers are being exploited on many routes, where fares are rising well above inflation but there is no reasonable alternative to catching the train.

The DfT has agreed a series of deals with train companies in recent months under which fares will rise well above inflation every year for the next decade. Many passengers on the East Midlands, West Midlands and CrossCountry franchises will end up paying 30 per cent more in real terms.

Ministers announced last month they they intended to shift the burden of paying for the railway much more heavily to passengers, who paid 50 per cent of the cost this year but will pay 75 per cent by 2014.

From 2009, the annual subsidy for the railways will fall from £4.5 billion to £3 billion. The total collected in fares will rise from £5 billion a year to £6.7 billion by 2010 and £9 billion by 2014.

Mr Emery wrote to Mike Mitchell, the transport department’s rail director, telling him that the Government’s policy of trying to reduce rail subsidy and raise its income from profitable parts of the railway could result in “future tensions” with competition law.

Mr Mitchell replied this week, stating that fare increases were necessary to fund investment in the network.

The ORR is now conducting a study of how it could use the Competition Act to intervene to protect passengers from “excessive increases”.

John Thomas, its director of competition, said: “At some point in the future there could be a tension between the Government accepting high-premium franchises but fares being excessive for passengers travelling between certain stations.”

In order to prove a breach of competition law, it would be necessary to show that fares were significantly higher than the cost of providing the service, he said. This raised the complex issue of cross-subsidy, under which profits from the busiest parts of the network are used to subsidise loss-making routes.

Mr Emery also gave warning that Network Rail’s directors could lose part of their annual bonuses if performance failed to improve on the Great Western route, where a quarter of trains run late.

The ORR is considering taking enforcement action against Network Rail, including imposing a fine.

It said that part of the reason for the slow rate of improvement on other lines, especially those in the South East, was that new trains were much heavier and caused more damage to the tracks. The heavier trains have been brought in over the past two years or so by the Southern, Southeastern, and South West Trains companies.

Track faults increased on the national network in the period April to June 2007 and the ORR said that Network Rail had attributed this increase “in part to the impact of new trains in the south of England, arising from the higher contact stresses from heavier trains with stiffer suspension”.

The number of temporary speed restrictions, caused by condition of track, that were in place by the end of June this year had fallen compared with the same time last year. The one area where there had been no decrease was the South East.