TRANSPORT group Stagecoach has failed to reach agreement with the Government over renewing a major rail franchise.

Stagecoach said the Department for Transport had ended talks over its South West Trains subsidiary - which runs commuter and other services from London Waterloo to Surrey, Hampshire, Somerset, Berkshire, Devon, Wiltshire and Dorset.

The DfT plans to invite train operating companies to bid for the franchise, which SWT has run since British Rail was privatised in 1996.

It is one of the country's biggest rail franchises, operating more than 1,600 trains a day, serving more than 200 stations and carrying over 200 million passengers a year.

The company said: "Stagecoach Group confirms that it has been notified by the Department for Transport that it is ending the discussions with Stagecoach subsidiary, Stagecoach South Western Trains Limited, regarding the direct award of a new rail franchise.

"The current franchise is due to end in February 2017 and, as previously reported, South West Trains had submitted proposals to the DfT as part of previously announced government plans for the direct award of a new franchise to at least April 2019.

"The DfT has now indicated that it plans to invite applicants to tender for a new long-term franchise to commence sometime in 2017.

"In the meantime, the DfT has indicated that it expects to exercise its pre-contracted option to extend the current South West Trains franchise beyond February 2017.

"The option allows the DfT to extend the franchise to no later than August 2017. Stagecoach does not currently expect South West Trains to earn a significant profit during any extension period."

Stagecoach said its proposals sought to build on the "extensive improvements" delivered since 1996, providing "more benefits for customers, good value for taxpayers and an appropriate return for investors".

A statement added: "However, despite extensive negotiations, a significant difference has remained between both parties regarding the financial evaluation of the proposals. As a result, South West Trains has been unable to reach an agreement on a direct award.

"Nevertheless, as the incumbent operator with nearly 20 years' experience in growing and improving one of the most complex and busiest rail franchises in the country, we believe we are in a strong position to submit a powerful and attractive bid for a new South West Trains franchise.

"In the meantime, we will continue to deliver on our commitments to government and customers, including the £50 million package of investment agreed with the DfT earlier this year as part of a Deed of Amendment to the existing franchise."

Mick Cash, general secretary of the Rail, Maritime and Transport union, said: "For some time now we have been told that DfT would be agreeing a direct award with SWT but now this has been abandoned and the chaos and confusion over rail franchising that was a permanent feature of the last government is continuing only months after the election.

"It is also a shocking indictment of government policy and the privatised railway that a company that has been running the franchise for 20 years is not being entrusted with the service going forward.

"That speaks volumes and this area was also supposed to be the test bed for the 'deep alliance' between train companies and Network Rail. That is now in tatters, wasting huge amounts of time and money that could have been invested in services."