The Government today announced it will take control of National Express’ loss-making East Coast main line rail service on November 13 and will keep the franchise until 2011 until a new operator is found.

The UK Department for Transport has been in discussions with National Express, which also operates the East Anglia and c2c franchises, since July 1, when the rail operator announced it would walk away from the contract later this year.

The Government will begin looking for a new operator at some time next year and intends to hand over the franchise to the winning bidder in 2011.

The East Coast main line rail runs from London to Edinburgh, via York and Leeds, carries 17 million passengers a year and employs 3,100 staff.

Lord Adonis, the Transport Secretary, said today that all staff would be transferred to work on the Government-owned service.

He said: "Further to my statements of July 1 on East Coast main line rail services, after the close of markets yesterday I notified National Express East Coast that I am terminating their franchise with effect from 11.59 pm on 13 November.”

National Express won a hard-fought battle to take over the running of the East Coast franchise in 2007, and agreed to pay the Government £1.4 billion over seven and a half years to operate the service.

However, the company was hit by falling revenues as the recession resulted in thousands of business travellers every day trading down from first to standard class while other passengers travelled off-peak to get cheaper fares.

National Express, already debt-laden from taking on the franchise, was left struggling to make the payments to the Government after agreeing to pay such a high premium in order to win the contract.

The company had attempted to renegotiate the terms of the contract with the Government.

However, talks broke down earlier this year, and Lord Adonis, the Transport Secretary, announced that he intended to renationalise the service.

The Department of Transport said today it expected to make a profit from running the service because it is not paying a premium to operate the franchise.

Lord Adonis said today that services would continue without disruption, tickets already purchased would be valid and employees would not be affected.

National Express has been the target of several takeover approaches, which have intensified since the Government said it would re-nationalise the service.

The bus and train operator said last month that the latest offer, from Stagecoach, had been rejected and the company will pursue a rights issue of between £300 million and £400 million instead.

The board of National Express has come under growing pressure in recent days to go back into takeover talks with Stagecoach after its largest investor, the Cosmen family of Spain, criticised it for rejecting the approach only ten days after receiving it.

Stagecoach had also previously been part of a consortium which, led by the Cosmens and backed by CVC, the private equity firm, offered 500p a share for the group.

The Cosmen family has itself come under pressure this week, with key shareholders calling for Jorge Cosmen, the deputy chairman, to reconsider his position as tension grows between the executive and other board members.

Shareholders are understood to have been angered after Mr Cosmen contacted a number of them to urge them to reconsider a merger with Stagecoach. They say Mr Cosmen has no confidence in his fellow directors, casting doubt over his suitability for the role.

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