Blair `may face rail franchise cash crisis'

The Labour Party has been warned by British Rail managers that a train operating company will have to ask for more cash to run services within three years of Tony Blair taking office, according to shadow cabinet aides.

The managers claimed that some of the private operators bid so aggressively for train services that they will not be able to meet the ambitious targets they have set for themselves.

Labour is committed to refusing any further subsidy payments and if the private firm will not be able to run trains with the money provided by the government, Labour's new rail authority will take over the franchise.

One option under consideration is a hit squad of rail professionals who will step in, should a franchisee pull out, and run the service.

A spokesman for Glenda Jackson, a shadow transport minister, said: "Labour will take a tough policy towards franchisees who fail to meet their obligations. We will not be held to ransom by private companies."

The Government said that it would not shell out more subsidies. "We would take a very dim view of any bidder coming back for any more money than has been agreed," said a spokesman for Opraf, the office of passenger franchising.

Successful bidders have to place a performance bond with the franchising director - worth 15 per cent of a train company's revenue - which can be cashed if a private firm pulls out. Virgin put up pounds 40m to secure its bid for the prestige West Coast line, whereas National Express took out a pounds 10m bond when it took over North London Railways.

Under the Government's franchising system, firms bid to run train businesses. The licence is awarded to the company that asks for the lowest subsidy or offers the biggest payments over the length of the franchise while meeting minimum standards. The system has seen private firms requiring annual growth rates of up to 10 per cent in passenger revenue.

The rail privatisations have saved the taxpayer billions of pounds. But experts say that there will be some losers in the process. "Some franchises will make money and some will run into difficulties," said Roger Ford, editor of Rail Privatisation News.

Earlier this week, civil servants said that Virgin, which took over the West Coast mainline, needed to increase its revenue by 300 per cent over 15 years to meet its projections. The company will have to turn a pounds 76m subsidy in its first year to a pounds 220 payment to the government in the last year of the franchise.