The East Coast Mainline is set to be nationalised later this year if operator National Express fails to meet its payments to the government.

The announcement came this morning from transport secretary Lord Adonis, who said he had set up a publicly-owned company to take over the running of the London-to-Edinburgh line when National Express could no longer do so.

The company told the stock market at 7am this morning that it did not expect to be able to meet its commitments to run the line beyond the end of this year.

"I have therefore established a publicly-owned company, which will take over this franchise from the point at which National Express east coast ceases to operate,” Adonis told the BBC.

"We will agree an orderly handover with National Express. Until that date, National Express will operate services on the current basis; after that date the new public company will do so."

But on the same programme, National Express chief operating officer Ray O’Toole said the government had “jumped the gun”, suggesting that the company may recover sufficiently to continue the franchise into 2010.

O’Toole said National Express had not walked away from the franchise, but told the government that if poor financial conditions persisted, they would be forced to turn over the line to public ownership in an “orderly manner”.

Asked if it was possible the company could still be running the line next year, he said: "Yes. If the economic downturn does start to recover in the second half of the year and we see things a lot better... we will continue to run it."

A spokesman for the Department for Transport (DfT) said the government’s announcement had been necessary to reassure passengers in the wake of National Express’s early morning statement on its finances.

He said the department had not ruled out a continuation of the National Express franchise in the event of the company’s position improving.

Liberal Democrat transport spokesman Norman Baker said he welcomed the potential renationalisation, adding that there should be a move towards a railway run less according to “Treasury-driven” cost concerns.

"I would like to see a railway where the outputs are not simply Treasury-driven, to get the maximum price - because that's the consequence of what we've seen today - but also takes far greater account of what passengers want to see on their railway,” Baker said.