The process to strip Northern rail of its franchise has begun after years of poor performance, the transport secretary has said.

Grant Shapps told the BBC he had started the process that could result in removing the firm’s routes, calling its service “completely unacceptable”.

It follows a year of chaos and cancellations across the network, which runs from Newcastle to Leeds, Liverpool, Hull, Manchester and Stoke.

Millions of commuters will have to pay an average of 2.7% more for train tickets from Thursday.

Asked whether his intention was for the firm to be removed from the franchise, Shapps said: “That’s right. In the autumn I wrote to the necessary parties in this with what’s called a request for proposal.

“And that’s simply where you take action. There are a couple of ways that can go. But one is to strip a franchise, one is to have a short-term contract. But yes, exactly as you’ve said, I’m simply not prepared for the service on Northern to carry on as it is and I am taking action.”

Shapps told the Commons transport select committee in October that the first steps had been taken towards taking the Northern rail network back into public hands.

He said he had asked the Northern franchisee, the German-owned Arriva, and the government’s operator of last resort to draw up proposals to improve the service.

Highlighting that barely one in two Northern trains ran on time, Shapps said: “I consider that it cannot continue delivering in the current delivery method.”

The shadow transport secretary, Andy McDonald, said: “Arriva Rail North should have been stripped of its franchise years ago following its woeful performance and treatment of passengers.

“The Tories stood by as the company ran the service into the ground. They failed to hold Arriva to the terms of its contract and yet again passengers and taxpayers will pay the price.”

Rail union RMT, which has long been in dispute with Northern over the role of guards, said Shapps was “big on talk about Northern Rail this morning but short on detail”. The general secretary, Mick Cash, called on Shapps to set out a clear timetable for removing the franchise from Arriva, accusing the transport secretary of trying to distract from continued fare rises.

A spokesman for the Department for Transport said: “As the transport secretary said, he has started a process which would either strip Northern of its franchise or to issue a short-term contract to them.

“We are taking action to ensure passengers in the north get a better service and we will provide an update in due course.”

There was an average 2.7% rise overall on Thursday, and a 2.8% rise on many season tickets, meaning many commuters face an increase of more than £100 for annual passes.

There were protests at a number of stations including King’s Cross in London, where members of the RMT union gathered at the front of the commuter hub, holding signs reading “Cut fares, not staff” and “Privatisation is not progress”.

The mayor of Greater Manchester, Andy Burnham, said Shapps’ comments were welcome but he was concerned that a possible new contract for Arriva was still on the table. It would be “a reward for failure and completely unacceptable”, he added.

He added: “I call on the government to rule it out, put our rail services under public control and work with us towards Greater Manchester taking devolved control.”

Northern has been beset by problems, including the breakdown in industrial relations, and suffered more than most networks after the botched introduction of a new timetable in May 2018.

While Network Rail, the owner and operator of Britain’s rail infrastructure, accepted much of the immediate blame for engineering delays and the rescheduling process, Northern has failed to restore punctuality this year.

Northern has blamed factors outside its control for the problems. David Brown, the managing director, said in October it had faced “several material and unprecedented challenges” of which the most significant was delayed upgrades to infrastructure and an electrification programme.

“These factors – alongside the damage caused by strike action and lower than expected economic growth – have had a significant effect on the revenue expected in our original franchise business plan agreed with government back in 2015,” he said.

He added that Arriva and Northern were investing £600m and “remain fully committed to delivering the transformation of the north’s railways”.

Such assurances have failed to mollify northern leaders, with the mayor of Liverpool, Steve Rotheram, joining Burnham in calling for the franchise to be taken into public ownership.

Calls for action have started to extend to the neighbouring franchise, TransPennine Express, which operates faster connections between northern cities. After widespread problems in 2018, it has again seen extraordinarily poor performance in recent weeks, with barely one in two trains running on time since the introduction of a new timetable in December.

The Northern Powerhouse Partnership thinktank said TransPennine Express were “equally as bad if not worse” than Northern, and should be treated the same by Shapps.

The director, Henri Murison, said: “The same process under way for Northern should be triggered with TransPennine for their unacceptable performance levels. The key issue is what happens next.”

Reported plans to split the current Northern franchise into two businesses was “a knee-jerk response and would likely make problems worse”, he added.

Northern would be the second service to be returned into public ownership under the Conservative government, after the collapse of Virgin Trains East Coast, now run as LNER under the Department for Transport’s operator of last resort.