Public and not-for-profit companies would be allowed to run train services as well as private firms if Labour wins power at next year's general election.
Ed Miliband has headed off trade union demands for a full-scale renationalisation of the rail system, which was privatised by the Conservatives in the 1990s. But state-owned or not-for-profit firms would be able to bid against private operators like Virgin Trains and Stagecoach when their existing franchises come up for renewal.
Labour's policy will be discussed at a meeting of the party's national policy forum in Milton Keynes starting on Friday, which will shape its election manifesto.
Rail unions had wanted to see franchises automatically returned to public firms when they ran out. But they have reached a compromise with the Labour leadership on a proposal for a “level playing field” in the bidding process.
A motion to go before the forum suggests that a Labour government would also cap annual fare rises on every route, rather than just commuter services; simplify fare structures and bring in a legal right to the cheapest ticket. A national strategic rail body would include passenger representatives and be able to devolve power so integrated transport systems could be developed locally.
Labour sources said the plan moved beyond the “public versus private” debate and would produce a rail system fit for the 21st century that was “neither Tory privatisation or a return to British Rail.” One official said: “It is not about ideology.”
The Tories pointed to warnings by private operators that they would not bid for franchises under Labour's scheme, which would result in renationalisation. Patrick McLoughlin, the Transport Secretary, said: “This short-term gimmick from Ed Miliband, demanded by his union bosses, will mean more government borrowing, higher rail fares, and worse services for hardworking taxpayers.”