The government is taking over the Southeastern rail franchise after a “serious breach” by the franchise operator – which it said failed to declare £25m in taxpayer funding that should have been returned.

Transport secretary Grant Shapps announced that it was stripping the running of the service from current operator London & South East Railway (LSER) from 17 October.

The Department for Transport (DfT) said it had identified a breach of the franchise agreement dating back to October 2014.

It related to “historic taxpayer funding which should have been returned”.

The franchise will be taken over by the government’s “operator of last resort”. The DfT said passengers would see no change to fares, tickets or services, and that frontline staff at the company would not be affected.

Further investigations are being carried out after which the government “will consider further options for enforcement action, including statutory financial penalties”, it added.

Mr Shapps, said: “There is clear, compelling and serious evidence that LSER have breached the trust that is absolutely fundamental to the success of our railways.

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“When trust is broken, we will act decisively.”

LSER is 65% owned by UK-listed transport operator Go-Ahead and the remainder by France’s Keolis.

Go-Ahead chairman Clare Hollingsworth, said: “We recognise that mistakes have been made and we sincerely apologise to the DfT.

“We are working constructively with the DfT towards a settlement of this matter.”

The company said its operation of the Govia Thameslink Railway – another joint venture with Keolis which Go-Ahead majority owns – was not affected.

It said it had repaid the £25m referred to by the government.

The group added that as a result of “ongoing discussions” with the DfT, the publication of its results for the year to 3 July, currently due on 30 September, would be postponed.

Finance director Elodie Brian has decided to resign and will stand down from the board with immediate effect, the company added.

Shares in Go-Ahead slumped by 14% in morning trading.

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