TRAIN company GNER this week won the franchise to continue running East Coast main line services after agreeing to pay the Government more than £100m a year in return.

The Strategic Rail Authority announced on Tuesday that the York-based firm had been granted a seven-year extension to its franchise, starting on May 1, for which it will pay £1.3bn.

The contract could be extended for a further three years if performance targets are met.

Virgin, Stagecoach, Danish rail company DSB and the First Group had all competed to operate the flagship service.

Alistair Darling, Transport Secretary, said GNER was committed to improving punctuality and reliability.

"It will refurbish carriages and invest in stations, as well as maintaining the high levels of on-board service. Extra staff will also be recruited," he said.

News that GNER had retained the contract was generally welcomed.

George Cowcher, chief executive of the North-East Chamber of Commerce, said: "GNER has a terrific record on running this route which is a vital link between the North-East and the South. They have proved to be a real asset for the North-East."

Terry Hodgkinson, chairman of Yorkshire Forward, said the company had been of tremendous benefit to the region's economy.

Many new jobs and business had been created in Yorkshire and Humber since 1996 when GNER began operating the route.

"Much of this would not have been possible without the high-quality rail services provided by GNER, which has managed to bring London to within two hours' travel time of our region - a major influence on our ability to compete in the global economy."

The East Coast Passengers' Panel also welcomed the news but said it would "use its best endeavours to ensure that the ordinary passenger is not priced off the railway in the efforts to maximise the return to the Government."

Fran Critchley, deputy secretary of the North-East Rail Passengers Committee, expressed similar concerns about the increased payments to Government. "Our worry is that if you have got something like a four or five-fold increase in premium payments, that money either has to come from the fare box or by a reduction in the salary bill," she said.

"However, we don't want to see the service suffering or frontline services at stations or on board trains being hit."

GNER chief executive Christopher Garnett said: "Fares will go up, but not in the big way people are describing."

* The York-based Grand Central Railway Company, which hopes to launch a fully commercial, unsubsidised, service from the North-East and West Yorkshire to London, said it would seek to match GNER's standards of service quality and delivery.

Grand Central has formally bid to operate two inter-city passenger routes, including a direct service from Sunderland to London.

It would serve Hartlepool, Eaglescliffe (for Middlesbrough and Teesside), Northallerton, Thirsk and York before running non-stop to London.

The second route would run from Bradford to London.