One of the most powerful sections of Ed Miliband's speech came when, with remarkable fluency, he declared of the government: "Have you ever seen a more incompetent, hopeless, out of touch, U-turning, pledge breaking, make it up as you go along, back-of-the-envelope, miserable shower?" Less than a day later, ministers have demonstrated exactly what he meant.

The Transport Secretary Patrick McLoughlin has announced that the decision to award the West Coast Main Line rail franchise to FirstGroup has been cancelled after the discovery of "significant technical flaws" in the bidding process. The government will no longer challenge the judicial review sought by Virgin, the current operator, which has long argued that the process did not adequately assess the risks of competing bids (it warned that FirstGroup's £5.5bn bid was a recipe for bankruptcy). According to McLoughlin, the reopening of the bids will cost the taxpayer "in the region of £40m".

The staff involved have been suspended from the Department from Transport and two independent reviews, one into what went wrong with the West Coast competition and the other into the wider franchise bidding process, have been launched. What makes this particularly damaging for the government is that Labour had previously called for the contract to be halted in order to allow such a review to take place.

McLoughlin said:

I have had to cancel the competition for the running of the West Coast franchise because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process.

A detailed examination by my officials into what happened has revealed these flaws and means it is no longer possible to award a new franchise on the basis of the competition that was held.

I have ordered two independent reviews to look urgently and thoroughly into the matter so that we know what exactly happened and how we can make sure our rail franchise programme is fit for purpose.

The government will now likely transfer responsibility for the running of the line to the state-owned Directly Operated Railways, which took over the East Coast Main Line in 2009. Labour has called for the government to immediately halt the planned privatisation of the latter. Indeed, with 15 rail franchises due to be awarded before the general election, the argument for full renationalisation has been immeasurably strengthened.