The planned cuts deal a heavy blow to ex-Jarvis workers. They had all hoped to be taken on by Babcock if talks to buy the collapsed contractor’s track work packages are successful.

Babcock said it has suffered a fall in fortunes after failing to renew its a five-year High Output Track Renewals framework and losing out in the selection race for Network Rail’s core track renewals work.

The set backs have continued to hit the business with losses in the year to March running to £1.2m, on top of a £6.4m posted loss last year. This latest operating loss includes £4m in restructuring costs.

Turnover fell sharply as expected to £151m from £229m the year before.

Peter Rogers, group chief executive, said Babcock was well advance with plans to restructure the rail business, which started to operate profitably in 2010.

He added: “Overall headcount in the division will be reduced by 25% during the second quarter of 2010 and the number of operating locations across the North West are being rationalised.”

Rogers added that Babcock has received positive feedback from Network Rail about several changes to the way it planned and managed work.

He added: “In support of Network Rail’s cost reduction targets we are discussing a move to a single incentive-based contract for track renewals in North West England and Scotland replacing the separate contracts which existed previously.

Framework contracts in track, signalling and telecoms continued to provide a stable platform for Babcock’s rail side.

Rogers said that although Network Rail’s spend would be reduced, the £22 bn five-year programme offered significant opportunities in the future.

The problems at the rail side contrast with the Babcock International Group where pre-tax profits rose by a fifth to £129m on turnover flat at £1.895m.