Train companies are to be forced to cut the price of season tickets and off-peak fares for the first time since privatisation.

The Government has rejected pleas from the operators to ignore pricing rules as deflation looms.

Although the decision will be welcomed by commuters, it is likely to result in operators cutting services and jobs and raising prices on other fares. Those operators that are already struggling financially could be forced to surrender their franchises and large chunks of the railway could be nationalised temporarily.

The companies had argued that the formula — which says that fares will rise by 1 per cent above the retail prices index each January — was not designed to cope with deflation. Each stands to lose millions of pounds from January 2010 when commuters renew their season tickets.

Lord Adonis, the rail minister, will today tell the Commons Transport Select Committee that fares will fall in actual terms next January if, as is widely predicted, the RPI is negative this July. The July RPI figure is used to determine the following January’s fare changes.

Last month the big drop in mortgage costs pushed RPI down to 0.1 per cent, the lowest since 1960. Leading economists predict that by July RPI will be between minus 2 and minus 3 per cent, which would mean fares falling by 1 or 2 per cent. The cost of the average annual season ticket for journeys of 11 to 25 miles, currently £1,972, would fall by either £20 or £40.

Lord Adonis will tell the committee that train companies have made strong profits under the formula during boom years and cannot expect the rules to be changed in a recession. He will also argue that deflation will lower the companies’ costs: the fees they pay for their franchises and track access are index linked.

A DfT spokesman said: “RPI will be significantly negative in July, according to independent forecasting. Andrew Adonis will tell the Transport Select Committee that if these predictions prove accurate then the Government intends to allow regulated fares to fall. He will dismiss any suggestions that fares might be frozen simply to benefit the train operating companies, as this would be grossly unfair to passengers.”

Lord Adonis will also tell the committee that train companies will lose the right to raise some season tickets well above inflation providing that they maintain the average of RPI plus 1 per cent by lowering others.

Regulated fares rose by a record 6 per cent last month because RPI was 5 per cent in July last year. CrossCountry used the flexibility to raise the price of season tickets between Derby and Nottingham and Derby and Burton upon Trent by 8.9 per cent.

The companies may demand compensation for the change to the terms of their contracts. They are likely to bring in cost-cutting measures to compensate for the fall in income. South West Trains — which made £1 million a week in profit in recent years — is already shortening its off-peak trains, forcing more passengers to stand.

The operators are cutting more than 1,700 jobs and closing hundreds of ticket offices, forcing passengers to use ticket machines. Some of the cheapest tickets, such as Group Save, are not available from machines and many passengers unwittingly overpay.

Some of the companies may try to recoup their losses by imposing big increases in unregulated fares, which include “anytime” singles and day returns.

The cut in season-ticket prices is likely to cause significant cashflow problems for the companies. There are about one million season-ticket holders, and many renew their tickets in December each year to avoid the January increase. They are likely to wait until January to take advantage of the cut.

Gerry Doherty, the general secretary of the transport union TSSA, said: “These companies have milked the system to the maximum for many years and it would be a scandal if they were allowed to change the formula the first time it is due work in passengers’ favour.”

Rail passenger numbers are still growing, but at a much slower rate than the companies predicted when they bid for their franchises.

National Express is thought to be in serious difficulty after agreeing to pay the Government £1.4 billion for its East Coast franchise on the assumption that revenue would increase by 10 per cent a year.

Lord Adonis has reminded rail bosses that if they default on payments for one franchise the parent company will have to surrender control of all its franchises.

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