Ministers believe that rail track and signalling needs a big new investment programme if the troubled privatisation is to succeed.
After the launch of the privatisation Bill last week, John MacGregor, Transport Secretary, is preparing for a battle with the Treasury in this year's public spending negotiations. According to his department, private operators of rail services are unlikely to be attracted without modernisation of British Rail's ageing track and signalling. More investment may also be needed in rolling stock.
Any extension of a one-off modernisation programme into permanent subsidy for Railtrack, the new track authority, would amount to a significant change in the privatisation proposals.
The new mood among ministers will infuriate BR, which has argued for years that it suffered from chronic under-investment. Falling revenues during the recession, especially on commuter routes into London, have led to BR warnings that investment could fall by half over three years.
Mr MacGregor would also like to allow Railtrack to offer cheap rates to potential users of its track. Restrictions over such rates recently stalled plans for the 'Heathrow Express', the proposed rail link from Paddington to the airport, and led to the collapse of Charterail, which moved special road trailers by rail.
Mr MacGregor will announce this week details of his plans to attract extra finance to renew rolling stock. Under proposals first announced in the Autumn Statement, pounds 150m worth of rolling stock will be leased to the railways, spreading repayments. Before privatisation came on the agenda the Treasury resisted leasing, arguing that the Government could borrow more cheaply.
Although rail investment is at its highest for 30 years, much of this year's pounds 1bn will go on lines from Waterloo to the Channel Tunnel. A further pounds 200m is earmarked for safety improvements.
The network urgently needs pounds 500m for the west coast main line from Euston to Glasgow, and pounds 50m for the infamous line from Fenchurch Street to Tilbury and Southend. But investments on track and signalling would do little for Britain's railway supply industry, which says it could lose 30,000 jobs within two years.
Meanwhile, no work will start on the London Underground Jubilee Line project, which combines public and private sector finance, until March at the earliest because of continuing difficult negotiations with the banks.
Ministers fear that without a solution, the Treasury may reclaim the pounds 1.2bn available from the public purse.
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