Ministers are bracing for a "mucky" high court battle after demanding train operators pay penalty charges of up to £500m following the collapse of the franchise system.
The Government is prepared for a possible legal spat over the so-called “termination payments” from train firms after lockdown forced Whitehall to bail out the network.
Under questioning by MPs on the Public Accounts Committee, officials also revealed that the taxpayer bailout of the railways will top almost £10bn this year.
The spectre of litigation comes as operators are locked in talks with the Government over the way rail services will be provided in the future.
The Treasury has ordered officials to collect penalties that would have been payable had franchises not been cancelled because of the coronavirus pandemic.
Director-general for rail Ruth Hannant said operators must pay the fees by Dec 13.
She added: “They could decide that they want to pursue litigation against us at that point, but we would hope that they wouldn’t do so.”
The Telegraph revealed last weekend that the Department for Transport faces a New Year crisis after angering operators with demands to cough up.
One senior industry source said: “Some ownership groups could completely abandon the network."
Emergency contracts were put in place earlier this year to keep trains running during the crisis.
With a long wait for demand to return, even if a vaccine is found, ministers have accelerated plans to cancel franchising - a system where operators pay the Government for the right to run services, and earn cash from selling fares.
It will be replaced with an outsourcing model where the taxpayer directly funds rail services.
Ms Hannant said that operators “shouldn’t be relieved of any losses” they would have incurred under pre-Covid franchise terms, meaning some would have to make a termination payment.
Five franchises - South Western Railway, TransPennine Express, Greater Anglia, West Midlands and c2c - are understood to be in talks over penalties that could top £500m in total.
Conservative MP Huw Merriman, who chairs the Transport Committee, also appeared at the hearing. Reflecting on the prospect of a legal battle, he said: “It could be mucky.”
Rail operators have suffered badly from a plunge in commuting, after Boris Johnson recommended workers continue to do their jobs from home until at least March.
While industry sources have not ruled out the prospect of legal action, it is understood that no firm plans are in place to sue the DfT.
Meanwhile, DfT permanent secretary Bernadette Kelly revealed that so-called “emergency measures agreements”, put in place between March and September to ensure services kept running, have cost the Treasury an estimated £4.3bn.
Replacement contracts, called Emergency Recovery Measures Agreements, will cost taxpayers between £3bn and £5bn until the end of the financial year in March.