The government is facing calls for major infrastructure investment to tackle failing rail services in northern England, after it emerged that current Northern franchise holder Arriva Rail North’s (ARN) precarious financial position means it can only continue to operate for “a number of months.”

Transport secretary Grant Shapps has announced he is evaluating a proposal from the train operator on options for continuing its franchise, and that the process could ultimately lead to the government taking control of services.

Shapps said: “Passengers in the north have had to put up with unacceptable services for too long. We understand how frustrating this has been for people and we are taking action to make sure that performance improves.”

Adding that the potential action was triggered by concern over the financial position of ARN, Shapps said: “It has now been confirmed to me from the most recent available financial information that the franchise will only be able to continue for a number of months. The proposal I requested from ARN is being evaluated. Following completion of this process I will consider whether to award ARN a short-term management contract or whether to ask the Department for Transport’s own Operator of Last Resort to step in and deliver passenger services. Longer-term decisions on the franchise will be made in the light of the recommendations of the Williams Rail Review.”

The transport secretary also clarified that “the current financial position of the Northern franchise will not impact on the railway’s day-to-day operations,” and that “services will continue to run and there will be no impact on staff.”

Arriva has faced a range of issues in recent years, including outdated trains and widespread cancellations amid the introduction of new timetables.

The company, which operates Northern services, apologised to customers for ongoing disruption, but has blamed critical rail infrastructure shortcomings for hitting services.

Chris Burchell, Arriva’s managing director of UK Trains said: “We accept services on the Northern network are not yet good enough and we sincerely apologise to our customers for our role in that. 

“Many of the issues affecting the franchise however are outside the direct control of Northern. Assumptions were given when the plan for the franchise was developed that critical infrastructure projects would be delivered to enable growth and support capacity demands. Many of these have either been delayed or cancelled. This, along with unprecedented levels of strike action, has had a significant impact on the franchise – both in terms of service and financial performance.

“These challenges will continue to affect services irrespective of who is running them. What is needed is a new plan, and, in that analysis, we are fully in agreement with government. That is why the government asked us to prepare a business plan for a shorter Direct Award.”

Henri Murison, Northern Powerhouse Partnership director, also claimed that major infrastructure issues mean that any future operator would struggle to run good and reliable services under current conditions.

Murison said: “While there has been a great public clamour for stripping Northern of their franchise, and a belated recognition that Trans Pennine Express are just as bad, the crying shame is that whoever operates the railways in the North will struggle to run good and reliable services because of the major infrastructure issues in and out of some of our major cities.

“While the forthcoming Williams review will rightly address issues with the franchising process in the North, government should urgently act to undertake the engineering works needed to allow operators to run services more effectively, including a number that could be started immediately. Otherwise we risk a situation where the North faces years more misery on its rail network – regardless of who runs the trains.”

The transport secretary is set to make a final decision on the future of the Northern franchise before the end of this month, January 2020.