`pounds 1.8bn liability' means Tube could not be sold

London Underground is a "pounds 1.8bn liability" that can cannot be sold as a single entity, according to senior government officials, despite announcing record "operating" profits this year.

Although Tube managers will announce on Thursday that gross operating margins for this year will exceed pounds 210m - an improvement of more than pounds 18m over the previous year - civil servants say this is a "sleight of hand" which disguises the system's true losses.

Officials point out that the capital spending every year costs at least pounds 330m to replace equipment as it wears out - leaving the Tube heavily reliant on government grants. The system is also badly in need of investment and faces a bill for a backlog of repairs that tops pounds 1.25bn.

Although selling a majority stake in the Tube to the private sector remains an option for the Government, officials doubt whether there would be any takers for the ailing service unless subsidies were dramatically increased.

The most likely option for the Underground remains a British Rail-style split-up and sale. This would be vigorously opposed by Labour traditionalists who point out that present ministers attacked similar Conservative proposals for the nation's rail network when they sat on the Opposition benches.

Privately many officials concede that this would be a costly exercise. They point out that there is little room to increase revenue without raising the price of tickets, as London Transport already carries 85 per cent of commuters into London. This ability to increase sales quickly was key to the private sector tendering for BR's train operating companies.

"For the private sector to make a decent return and run the system you would need to pay companies at least pounds 175m a year for 15 years to make money," said one civil servant.

Little is expected to happen before 1999. This leaves the Underground facing a financial disaster, unless Gordon Brown, the Chancellor, injects more cash into the system this July it will be forced to prune its spending on essential station and signalling work.

If the Chancellor sticks by the Tory's spending plans for the Tube, the system will see its funding cut from more than pounds 600m this year to pounds 150m in 1999-2000.

Peter Ford, chairman of London Transport, said the system should not be privatised until ministers were sure it will get a better deal than in the public sector.

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