Prescott takes central line on Tube

John Prescott, the Deputy Prime Minister, yesterday ruled out wholesale privatisation of the London Underground but admitted that the Government is looking at ways of bringing in private-sector investment to improve services on the cash-strapped network.

Mr Prescott indicated this might involve "public-private partnerships". Other possible options included setting up a trust to guide investment, or modifying Treasury rules to enable modernisation to go ahead.

"I will find the money, other than from the Treasury, to see we modernise the Underground before it is flooded from all the water in the Thames," he pledged on BBC radio.

Any suggestion that the Tube could be privatised completely received a set back yesterday with the publication of a new report. The study, by Stephen Glaister and Tony Travers, from the London School of Economics, states that the "core Underground is a liability rather than an asset". It adds that the Government would need to invest pounds 1.6bn in order to make the system attractive enough for the private sector to take the Tube off its hands.

The real problem is thatLabour is committed to onerous public-spending targets as well as upgrading the Underground. Senior Tube managers claim the service needs pounds 150m immediately to prevent the present service from deteriorating.

The report highlights other sources of income that could be tapped; the two academics say that a local levy in the Eighties raised nearly pounds 190m a year for public transport. Money could also be collected from London businesses to pay for improvements - a scheme used in Paris to fund the glittering Metro.

The report also points out that studies show "congestion charging" could raise money for public transport as well as discourage the use of cars. This system has worked well in Oslo.

Rail campaigners warned that the Government should not resort to the policies of the late Conservative rule, which estimated that selling the Tube would raise between pounds 1.2bn and pounds 2bn, and which planned to use these receipts to fund improvements. "If the British Rail model of privatisation was applied to the Underground, it would be a clear case of the cure being more deadly than the disease," said a spokesman for Save Our Railways.

Mr Prescott said his review of Tube funding was far more wide-ranging than previously reported. He said he also had plans that would see the Tube in a private-public partnership with a "kind of golden share" held by government.

This would receive a warmer welcome from traditionalists than moves outlined in a letter, obtained by the BBC's Panorama, from Mr Prescott to Geoffrey Robinson, a Treasury minister. These included a British Rail type split-up and sale, a long-term lease to the private sector for the whole of the business, and a joint venture for the whole business with the private sector holding "a majority shareholding" - to avoid adding to government spending.

Private companies have expressed an interest in purchasing bits of the Underground. Railtrack, whose pounds 330m profits have already been attacked by Mr Prescott, said it was interested in running parts of the system. A spokesman for Richard Branson's Virgin group said it also was "very interested in looking at London Underground".

But the private sector may be in for a shock. Mr Glaister said that he would be surprised if Labour were to create a London authority, whose main function would be planning public transport, and then hand the Tube over to the private sector.