Tory ministers faced an angry backlash yesterday after it was revealed they have given rail privateer First Great Western (FGW) nearly a quarter of a billion pounds discount on its rail franchise.

FGW will pay just £32.5 million in premiums for the 23 months of the new extension, which lasts until 2015.

The premiums of the last two years of the previous contract amounted to £279m, revealing an astonishing £247m loss of payments to the taxpayer over a similar period under the current deal.

The extension was granted after a review of the government's tendering process which was put on hold following a complaint by Virgin Trains in 2012 over "significant technical flaws" when FGW operator FirstGroup won a bid on the West Coast franchise that Virgin was then operating.

The West Coast deal was annulled and the franchise process was put under review, with the government now set to pay the train companies £50m in compensation as a result.

Since the outcome of the review this April the government has concentrated on selling off the publicly owned and profitable East Coast line, while delaying the franchising tender of FGW run services by providing the massively discounted contract extension.

Railway union RMT said the figures backed up the union's claim that the government is ideologically opposed to a public-sector option. It said that franchise extensions are being awarded "on back-of-an-envelope calculations with the companies able to fill their boots with outrageous financial demands."

RMT general secretary Bob Crow said: "It is a scandal that the only reason for these costly contract extensions is David Cameron's decision to rig the franchising timetable so that he can carry out a totally unnecessary privatisation of East Coast rail services."

Labour's shadow transport secretary Mary Creagh also spotlighted the Tories' "obsession" with selling off East Coast while handing buckets of cash over to greedy rail companies.

She said: "David Cameron should tackle his government's cost of living crisis and cap rail fare rises for struggling commuters, instead of obsessing about handing East Coast over to the private sector. East Coast is working well and will have returned £800 million to the taxpayer by the end of this financial year.

"This government has learned nothing from the West Coast franchising fiasco, which saw over £50m of taxpayers' money wasted in compensation to train companies because of ministers' incompetence."

Train drivers' union Aslef general secretary Mick Whelan pointed out that FGW had cancelled the last three years of its current contract to avoid paying the taxpayer £800m in franchise fees.

He said: "It now seems this will be exacerbated by the fact that it will not have to pay the full market value for its extended contract. The truth is that the privatised train-operating companies think that the public should pay for the investment, while they make a private profit."

FGW did not respond to the Star's request for a comment.