The Government today halted the deal that would have seen Sir Richard Branson's train company lose its West Coast rail franchise.

Transport Secretary Patrick McLoughlin announced he was cancelling the competition for the running of the Glasgow-London franchise because of mistakes in the bidding process.

And he announced that a number of civil servants had been suspended.

Mr McLoughlin said he was "angry" at the errors, which he described as "deeply regrettable and completely unacceptable".

A 13-year franchise to run the line was awarded to Aberdeen-based FirstGroup earlier in the year. The company was due to start operations in December.

But Sir Richard Branson, whose Virgin Rail company has operated the line since 1997, had mounted a legal challenge against the decision.

Mr McLoughlin said today the Department Of Transport would no longer contest the matter in court and had paused all outstanding franchise competitions pending two independent reviews he has set up.

He said the decision had been taken "because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process".

He went on: "The original model didn't take into account inflation and also some elements of the passenger number increases over a number of years.

"I want to make it absolutely clear that neither FirstGroup nor Virgin did anything wrong. The fault of this lies wholly and squarely with the DfT. "

Mr McLoughlin has also put on "pause" the bidding process for three other rail franchises.

He went on: "I'm not going to apologise for the terrible mistake that has been made by the Department. We need to get to the bottom of what went wrong as far as that is concerned.

"I have ordered two independent reviews to look urgently and thoroughly into the matter."

But he added: "West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements, the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned.

"The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned."

Virgin has run the Glasgow-London line since 1997, more than doubling annual passenger levels and introducing high-speed tilting Pendolino trains on the route.

Sir Richard, who had described the bidding process as "flawed" and "insane", welcomed Mr McLoughlin's decision and said he was hopeful Virgin would carry on running the franchise.

FirstGroup, whose share price dropped 15% in the wake of the announcement, said it was "extremely disappointed" at the news, saying it had submitted "a strong bid, in good faith and in strict accordance with the DfT's terms".

However, news of the contract being cancelled sparked a political storm.

MP Louise Ellman, chairwoman of the House of Commons Transport Committee, said she was "astonished" by the development and said it put the whole franchising process "in disarray".

Shadow transport secretary Maria Eagle said the West Coast franchise process had been a "fiasco".

Liberal Democrat party president Tim Farron said "people must be held accountable" for the errors.

Bob Crow, general secretary of the RMT transport union, said: "The whole sorry and expensive shambles of rail privatisation has been dragged into the spotlight this morning and instead of rerunning this expensive circus, the West Coast route should be renationalised on a permanent basis."

Officials have been asked to examine options for the operation of the service after December 9.

The other outstanding franchise competitions that have been halted are Great Western, Essex Thameside and Thameslink.

DfT permanent secretary Philip Rutnam said: "The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

"I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again."

The Government today halted the deal that would have seen Sir Richard Branson's train company lose its West Coast rail franchise.

Transport Secretary Patrick McLoughlin announced he was cancelling the competition for the running of the Glasgow-London franchise because of mistakes in the bidding process.

And he announced that a number of civil servants had been suspended.

Mr McLoughlin said he was "angry" at the errors, which he described as "deeply regrettable and completely unacceptable".

A 13-year franchise to run the line was awarded to Aberdeen-based FirstGroup earlier in the year. The company was due to start operations in December.

But Sir Richard Branson, whose Virgin Rail company has operated the line since 1997, had mounted a legal challenge against the decision.

Mr McLoughlin said today the Department Of Transport would no longer contest the matter in court and had paused all outstanding franchise competitions pending two independent reviews he has set up.

He said the decision had been taken "because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process".

He went on: "The original model didn't take into account inflation and also some elements of the passenger number increases over a number of years.

"I want to make it absolutely clear that neither FirstGroup nor Virgin did anything wrong. The fault of this lies wholly and squarely with the DfT. "

Mr McLoughlin has also put on "pause" the bidding process for three other rail franchises.

He went on: "I'm not going to apologise for the terrible mistake that has been made by the Department. We need to get to the bottom of what went wrong as far as that is concerned.

"I have ordered two independent reviews to look urgently and thoroughly into the matter."

But he added: "West Coast passengers can rest assured that while we seek urgently to resolve the future arrangements, the trains that run now will continue to run, with the same drivers, the same staff and timetables as planned.

"The tickets that people have booked will continue to be valid and passengers will be able to make their journeys as planned."

Virgin has run the Glasgow-London line since 1997, more than doubling annual passenger levels and introducing high-speed tilting Pendolino trains on the route.

Sir Richard, who had described the bidding process as "flawed" and "insane", welcomed Mr McLoughlin's decision and said he was hopeful Virgin would carry on running the franchise.

FirstGroup, whose share price dropped 15% in the wake of the announcement, said it was "extremely disappointed" at the news, saying it had submitted "a strong bid, in good faith and in strict accordance with the DfT's terms".

However, news of the contract being cancelled sparked a political storm.

MP Louise Ellman, chairwoman of the House of Commons Transport Committee, said she was "astonished" by the development and said it put the whole franchising process "in disarray".

Shadow transport secretary Maria Eagle said the West Coast franchise process had been a "fiasco".

Liberal Democrat party president Tim Farron said "people must be held accountable" for the errors.

Bob Crow, general secretary of the RMT transport union, said: "The whole sorry and expensive shambles of rail privatisation has been dragged into the spotlight this morning and instead of rerunning this expensive circus, the West Coast route should be renationalised on a permanent basis."

Officials have been asked to examine options for the operation of the service after December 9.

The other outstanding franchise competitions that have been halted are Great Western, Essex Thameside and Thameslink.

DfT permanent secretary Philip Rutnam said: "The errors exposed by our investigation are deeply concerning. They show a lack of good process and a lack of proper quality assurance.

"I am determined to identify exactly what went wrong and why, and to put these things right so that we never find ourselves in this position again."

Scottish Transport Minister Keith Brown claims the bidding controversy has raised doubts over ScotRail's franchise for all internal Scottish rail services – which runs until 2014.

Mr Brown, right, said the DfT "appear to have suspended all franchising. We are very concerned about where this leaves us with the ongoing franchise for the ScotRail bid.

"We're at a very critical stage. We cannot wait around to look at a review which takes a number of months."

Mr Brown added: "The UK Government has to start talking to Scotland, the idea that we find out about these critical developments on the airwaves is simply not acceptable."

Asked what clarity there was about the future of the West Coast Main Line, Mr Brown said "absolutely none", adding it was unclear who would be running the line after December.

TAXPAYERS face a £40million bill for refunding train companies that lost money bidding to run rail services on the West Coast mainline.

All four companies who entered into the bidding process will be reimbursed for the costs.

Transport Secretary Patrick McLoughlin said: "I want to make sure what lessons need to be learnt from what went wrong, with this have not been repeated in those particular franchises."

When asked how much it would cost to reimburse the costs of the companies who entered into the bidding process, he replied: "We estimate that to be in the region of about £40million."

Mr McLoughlin said the cancelling of the West Coast Main Line rail franchise award was "wholly and squarely" down to a Whitehall fault.

Louise Ellman, chairwoman of the Transport Select Committee, raised concerns about the costs.

She said: "It is clear there are major costs to the taxpayer of this major error.

"If the mistake hadn't been found at this stage – and it has only been found because of questioning of the Department and because of the threatened court action - there would have been massive costs to the taxpayer in the future, and also possibly to passengers as well who might not have had their rail services."

Mick Whelan, leader of the train drivers' union Aslef, said: "Taxpayers and rail passengers will be handed a £40m bill because the Government is too pig-headed to recognise that rail franchising is unwieldy, expensive, bureaucratic, wasteful, imprecise, unscien- tific and, ultimately, indefensible.

"A serious study of alternative rail financing involving the workforce, companies, users, politicians, rail experts and any other stakeholders is urgently needed.

"Franchising has failed us all. It would be wrong to simply look at what went wrong this time.

"It is the whole process that is flawed, not this particular bid."