Subsidy up to £170m at Stagecoach trains network

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South West trains, the least reliable commuter network in the country, is to receive a near-fourfold increase in subsidies to £170m a year, it was announced yesterday.

The Government's Strategic Rail Authority said it had signed a new three-year franchise agreement with SWT's parent company Stagecoach entitling it to £505m in support from 2004 to 2007. Subsidies will rise from £48m last year to £170.5m in 2006-07.

Richard Bowker, the chairman of the SRA, defended the huge increase in subsidies on the grounds that SWT had committed itself to a heavy investment in new trains and a major improvement in performance.

SWT, the biggest commuter network in the country operating 1,700 services a day in and out of London Waterloo, has to increase the number of trains which run on time from 72 per cent last year to 84 per cent by 2007 or it will face severe financial penalties. The SRA could strip Stagecoach of its SWT franchise altogether if punctuality drops below a "default" level of 81 per cent. Last month it shocked the French-owned Connex by stripping it of the South Eastern commuter franchise from next January.

"One of the things that Stagecoach is committed to is a quite dramatic improvement in performance and that was fundamental to our acceptance of this arrangement," Mr Bowker said.

In addition to the punctuality improvements, Stagecoach is investing £645m in a new fleet of Desiro trains to replace all slam-door rolling stock and refurbishing its Class 455 metro trains. SWT has also agreed to run more peak-time trains on busy routes such as the Southampton, Portsmouth and Guildford lines, and lengthen platforms to accommodate the new trains.

The agreement with Stagecoach also includes a profit-sharing deal under which the SRA will receive 50 per cent of all profits before tax and interest in excess of £27m a year.

However, Stagecoach itself said last month that it expected SWT's profits to drop from £37m last year to £30m this year and £25m in 2004-05 - the first year of the new franchise agreement.

Commenting on the new franchise agreement, the chief executive of Stagecoach, Brian Souter, said: "It is an excellent deal for the Government, our passengers, our shareholders and our people."

This is the second big increase in subsidy payments by the SRA in the last three months. In May, it agreed to double subsidies for South Central Trains from £53m to £103m a year. South Central is operated by Govia, a joint venture between the Go-Ahead Group and the state-owned French railway SNCF. Virgin Trains, in which Stagecoach has a 49 per cent stake, has seen a near three-fold increase in subsidies this year to £282m to run the West Coast Main Line and Cross Country Trains.