Rail passengers face big fare rises to fill £150m funding gap

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Inter-city rail passengers face double-digit fare rises to pay for a £150m black hole in the industry's finances.

Inter-city rail passengers face double-digit fare rises to pay for a £150m black hole in the industry's finances.

The Government has told train companies that it has no intention of making up the shortfall by increasing state subsidies already running at record levels.

While fares on commuter routes and "saver" tickets on long distance trips are regulated and will increase by about 4 per cent, peak-time prices charged by inter-city operators are set to soar. Operators will try to save money by cutting jobs and axeing services, but fares will have to increase as well, insiders predict.

The Transport Secretary, Alistair Darling, believes costs are "running out of control" and has instructed his officials to take a "tough line" with operators. He is understood to have discovered that the gap between the state subsidy and the amount of money train that operators claim they need, on his return from holiday recently. He was reportedly "extremely angry" about the shortfall and will insist that the operators dig themselves out of the hole.

The operator bearing the initial brunt of the new hardline approach is Sir Richard Branson, whose Virgin Trains receives a fee above its costs for running services. Ministers told the Strategic Rail Authority (SRA) to halt negotiations with the company over extension of its nationwide CrossCountry franchise until 2012 on the grounds that its proposals did not constitute "value for money". The Treasury wants Sir Richard's sprawling network, which runs from Aberdeen to Penzance, to be broken up and hived off.The Government is also turning its attention to Virgin's west coast main line franchise which, according to the latest figures, produced the biggest profit of all the operators - £67.45m - after receiving £514m from taxpayers. More recently, the operator has been running the services for 2 per cent return above its costs. Mr Darling believes that Virgin - and other companies which work under "costs-plus" regime - have no incentive to control spending.

A spokesman at the Department for Transport said Mr Darling was "determined to ensure that taxpayers receive value for money". Mr Darling has abolished the SRA and his ministry has taken on responsibility for negotiating franchises.

The Government's tough approach was demonstrated yesterday when it emerged that it has delayed the start of an enlarged franchise covering most of northern England.

A joint venture by Serco and Ned Rail, a Dutch company, was due to take over on 17 October, but, it is understood, ministers are demanding more savings from the consortium.

Bob Crow, the general secretary of the RMT, the industry's largest union, said: "The private sector has already taken taxpayers for billions of pounds. It's about time a line was drawn under this and train services were brought back under public control."

A spokesman for the SRA contradicted Mr Darling's spokesman over spending. "Train operators' costs are not out of control," he said. "If anyone is surprised about costs, it's because they haven't had their antenna switched on."