THE future of East Coast rail services was last night thrown into chaos as a takeover battle and wider transport spending cuts loomed.

Union chiefs warned of job losses and service cuts as it emerged First Group wants to take over its rival National Express, which has hit trouble after overbidding to run trains on the East Coast Main Line.

National Express rejected the move, but concerns remain about its financial health amid a £1.2bn mountain of debt.

It agreed to pay £1.4bn to the Government in 2007 to run trains between the region, London and Scotland only to see revenue crash. And the firm has been accused of “mugging” passengers by charging for seat reservations.

Crunch talks between the company and the Department for Transport (DfT) to renegotiate the deal have reportedly collapsed, before National Express gives a trading update tomorrow.

The developments came as Business Secretary Lord Mandelson announced cuts in the DfT budget to pay for social and affordable housing.

The Journal last week revealed MPs’ fears that spending cuts will hit the North hardest while multi-billion transport schemes in the South roar ahead.

RMT rail union general secretary Bob Crow said the takeover talks revealed the “chaos” within the Government’s rail franchising system and demanded ministers bring services back under public ownership.

“We are deeply concerned,” he said. “The whole history of the way these companies will operate, they will look to slash costs to maximise profits and that means that jobs are at risk.

“Important capital expenditure work and the quality of service just take a back seat to the whole drive to maximise returns for shareholders.