Rail franchises such as Northern and South Western should be scrapped and cities given control of commuter services, transport campaigners have urged, to bring an end to years of “nightmare rail journeys”.

The call comes as the fate of Northern Rail hangs in the balance, after continued disruption led to northern mayors demanding that Arriva, which has operated the network since 2016, be stripped of its contract.

The report by the Campaign for Better Transport recommends radical overhaul of the rail system and devolution of control. Cities and regional bodies should procure and oversee rail services to ensure they benefit local communities. Rail franchising should give way to more flexible contracts, allowing competitive intercity services, concessions in commuter areas, and specific agreements for places where there is significant change and investment.

Darren Shirley, the campaign’s chief executive, said: “Passengers have suffered unreliable, expensive, overcrowded trains for too long. Railways have the potential to deliver huge economic, social and environmental benefits to communities and the country as a whole, but the system needs to change fundamentally.

“The government must now seize its chance to put an end to nightmare rail journeys by delivering a new national rail policy and the means to implement it.”

The mayor of Greater Manchester, Andy Burnham, welcomed the report, after another year of mass disruption and delay on both the Northern and TransPennine franchises.

Burnham said the call for devolution reaffirmed his own vision for Greater Manchester to have more local control over the franchising system. He added: “There is now consensus that the privatisation has not worked and needs a shakeup. The prime minister has set out his commitment to improve transport in the north – it is beyond time that the government stripped Northern of the franchise and set a deadline for TransPennine Express to improve.”

Speculation has intensified that the government is planning to split the Northern franchise into two, a western and eastern region, in an attempt to restore properly functioning services. The transport secretary, Grant Shapps, told a Commons committee in October that contingency plans were being developed to replace Arriva’s current franchise with either a new short-term management contract, or under the state-owned operator of last resort (OLR), which was mobilised last year to take over Virgin Trains East Coast, now rebranded LNER.

Although the Department for Transport has the right to take a franchise away for poor performance, it must weigh up whether the move could cause more disruption. Northern argues that many of its problems have been caused by overrunning infrastructure works, including delayed electrification, causing late delivery of trains and subsequent problems with crew and drivers.

However, the government could find Northern in default and terminate the franchise – although ensuing action is complicated by wider reforms of the rail system. A review conducted by the former British Airways boss Keith Williams is due to be published as a government white paper early in the new year.

A DfT spokesperson said: “The government will shortly bring forward reforms from the Williams review – the first root-and-branch review of the rail industry in a generation. These reforms will put passengers first, end the complicated franchising model and simplify fares to create a fairer, more effective system.”

Serious disruption persists on at least four franchises, including Northern. TransPennine Express is running a reduced timetable after problems introducing new fleets. Almost half of its remaining trains have run late in December; about one in three were cancelled or significantly late on Friday. West Midland Trains has struggled to operate its increased timetable since May. Train crews on South Western Railway have been on strike throughout December, forcing the operator to cancel 40% of its schedule in advance.

Rail fares are also due to rise by 2.8% on 2 January.