During Question Time, the Prime Minister was forced to defend proposals for a public-private partnership, stressing that the alternative of issuing bonds to pay for investment "wouldn't save people in London money, it would cost them money".
Mr Blair was responding to the Liberal Democrat leader, Charles Kennedy, who accused him of dismissing his party's policy of a bond issue, which he claimed would save pounds 150 for every Londoner.
Mr Blair was challenged on the "fiasco over rail policy" by Mr Kennedy, who attacked him for "inaccurately rebutting international comparisons".
Mr Kennedy claimed the Prime Minister had said that the bond issue policy "had bankrupted New York" while a "senior former official in New York described that statement as a complete utter untruth". "Will you actually justify your policy by means of genuine argument and not by inaccurate rubbishing of international comparisons?"
Replying, Mr Blair insisted: "I didn't say that. What I said was that New York had gone bankrupt. The bonds issue that was then issued, not in fact by New York, but in fact by the state government, is another matter altogether.
"If you are suggesting, as I doubt you are, that central government issue the bonds for the London Underground, then I think you will have quite a lot of explaining to do in the course of this election campaign."
If bonds were issued and the Tube stayed in the public sector, he said, it would mean that the construction work would not be done to cost and on time.
But Mr Kennedy told him: "It was only last week that our mutual friend was telling me that his policy would get the Tube completed on time.
"Seven days later, what's happened? Railtrack deemed unable to submit a bid, Deputy Prime Minister John Prescott performing a U-turn, Tube improvement further delayed, the policy of the Government completely off the rails."
He asked Mr Blair: "Won't you admit that your policy in seven parliamentary days has gone from rolling stock to laughing stock?"
Mr Blair said: "The best way is to have the public sector do what it does best - run the trains, Underground, safety, but have the private sector do the construction work needed by the Tube. The alternative is to leave it all in the public sector, including the construction work, and we would be back in the position of the Jubilee Line where it came in pounds 1.4bn over-run and almost two years late."
During a later exchange with Tony Benn, the Labour MP for Chesterfield, Mr Blair refused to disclose any details about his alleged discussions with Paddy Ashdown, the former Liberal Democrat leader, about the possibility of a coalition between the two parties.
"I think you can look at my Cabinet and there are no Liberal Democrat members as far as I am aware," Mr Blair said.Reuse content