Rumours suggested that Virgin Rail fell £1 billion short in the bidding war with FirstGroup, meaning that the latter, which also runs Great Western and ScotRail, will take over what is reckoned to be the busiest and most lucrative franchise.

Unions claim that job cuts and even higher fare rises will pay for the bid and have warned that if FirstGroup falters, it'll simply throw back the keys and expect the taxpayer to step in.

Virgin boss Richard Branson said he was "extremely disappointed" that the Department for Transport had snubbed his firm.

"Based on the current flawed system, it is extremely unlikely that we would bid again for a franchise," he said.

"To have bid more would have involved dramatic cuts to customer quality and considerable fare rises which we were unwilling to entertain."

FirstGroup claims it will put more trains on the route, which provides services from London to Birmingham and the west as well as Glasgow, when it takes over in December.

There are worries it may follow former East Coast main line operators GNER and National Express who had "overbid" for the franchise in 2007 and hit the buffers.

RMT general secretary Bob Crow said: ""We are already preparing a ballot for industrial action in light of the threatened job cuts. This rotten Con-Dem government has turned the running of the railways into a shambolic, profit-led lottery.

"In the past 24 hours ministers have done more to fuel the campaign for renationalising Britain's railways than RMT could have dreamt of."

Manuel Cortes, leader of the Transport Salaried Staffs Association rail union, added: "This crazy franchise lottery means passengers will have to pay inflation-busting fare rises on the busiest line for the next 14 years."

National organiser Simon Weller said: "This is money that could have been used to improve rail services. Instead it flows out of our industry into the pockets of the investing rich."