BR loses pounds 500m on failed freight plans

British Rail has written off pounds 500m because ambitious plans to develop freight business through the Channel Tunnel have failed.

The annual accounts of British Rail published yesterday show that making provision for pounds 300m worth of assets and pounds 200m of payments due to Eurotunnel between now and the year 2006 have reduced British Rail's nominal profit for last year to just pounds 14m from pounds 571m in the previous year.

The timing of the write-off, and its scale, raised suspicions that it is being made in order to prepare BR's loss-making freight company, Railfreight Distribution, for privatisation before the general election. The Government announced recently that RfD would be sold as soon as possible, even though the accounts showed that it made losses of pounds 58.6m on a turnover of pounds 70.4m.

However, John Welsby, British Rail's chairman, stressed the timing of the write-off had nothing to do with privatisation: "I would not have been happy signing off the accounts unless this provision had been made."

James Jerram, BR's finance director, said the estimates of the use of the Channel Tunnel, made in 1986, had been very optimistic but now a price warbetween freight operators and Eurotunnel was squeezing rail traffic. He accepted, too, that the contract signed in 1986 which gives Eurotunnel a minimum of pounds 20m per year for freight trains was a kind of hidden public subsidy for the construction of the tunnel.

Clare Short, Labour's transport spokeswoman, said: "This is another sickening sweetener to ensure the industry is sold as quickly as possible."