IT IS expected to be announced today that train company GNER will continue to run East Coast mainline services after agreeing to pay the Government more than £100m a year.

The Strategic Rail Authority is tipped to announce that the company, based in York, has been granted a seven-year extension to its franchise - to start on May 1 - with the option of a further three years.

GNER had faced competition from a consortium of Virgin and Stagecoach as well as Danish rail company DSB and the First Group.

It currently pays back about £22m a year in premium payments to the Treasury.

Last night, Bob Crow, general secretary of the RMT rail union, claimed such an increase in premiums "raised the threat of service cuts, massive fare rises and a huge squeeze on rail workers' jobs and conditions".

Fran Critchley, of the North-East Rail Passengers Committee, said: "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.

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

GNER, which received a two-year extension to its East Coast mainline contract in 2003, has previously said that it is "pretty relaxed" about the prospect of higher premium payments.

It initially received Government subsidies of more than £70m a year when it began running trains on the London to Scotland route, but has since turned it into a hugely profitable business.

It began paying money back to the Treasury in March 2002 and has an income of about £400m a year.

GNER carries more than 15 million passengers each year.

A rail industry insider said: "GNER has demonstrated how you can take money out of the franchise and still improve the service.

"The trick now is how they are going to pay back £100m a year.