Boost for £3.5bn rail scheme

A £3.5bn scheme to ease rail congestion in central London moved a big step forward yesterday after the Government announced it was granting Network Rail legal powers and planning permission to build the Thameslink upgrade.

Funding for the long-delayed project has not yet been agreed and will depend on the settlement the company comes to next year with the Department for Transport. Rail executives are confident that the decision to grant planning permission means the upgrade will go ahead, even though it will end up being built 14 years late. John Armitt, the chief executive of Network Rail, described the announcement as a "landmark decision".

The upgrade will more-than double capacity on one of Europe's busiest rail routes - the corridor between London Bridge station south of the Thames and Farringdon to the north - and more than treble the number of stations served by direct north-south services to 172.

Blackfriars and Farringdon stations will be rebuilt, London Bridge will be extensively enlarged and 12-carriage trains will replace the existing eight-carriage ones. If it goes ahead, the upgrade will start in 2008 and take seven years to complete, but Network Rail said many of the improvements in services north of the river would be ready in time for the 2012 London Olympics.

The Thameslink project accounts for nearly half the £7.9bn Network Rail proposes to spend on enhancements between 2009 and 2014. The options for the Government are either to fund it directly with capital grants or allow Network Rail to borrow the money and then cover its costs through the access charges it levies on train operators. This, in turn, could mean higher fares for passengers or subsidies from government to train operators to cover the increased access charge.

Network Rail will get a clearer idea of whether there will be funding available next spring when the Government publishes its "high level output" statement - a menu of which rail projects it wants to see go ahead.

First Group won a new nine-year franchise earlier this year to operate the Thameslink service, which has now been renamed First Capital Connect, after agreeing to pay the Government £809m in premiums. The route runs from Brighton to Bedford via Gatwick and Luton airports.

Approval for the scheme heightens the chances of the Gatwick Express franchise, currently held by National Express, being scrapped because First Group will be able to offer an improved service into central London.