Brown halts £10bn rail scheme in funding row

The Chancellor of the Exchequer, Gordon Brown, is blocking a £10bn rail scheme regarded as vital to the transport system in London because private companies are allegedly failing to come up with their share of the costs, according to Whitehall sources.

The Government expects businesses to invest more than £3bn in the Crossrail project but so far responses have been inadequate, Treasury officials said. A total of £154m of public money has already being spent in feasibility studies.

Only three months ago, Alistair Darling, Secretary of State for Transport, brought to an end years of consideration and non-commitment by announcing his support "in principle" for the scheme.

However, as he launched a consultation process, he warned that a significant proportion of the money required to finance the ambitious transport project would have to come from the private sector.

Difficulty finding the funding is likely to inflame tensions between the Government and the transport industry, and will only worsen ministers' growing problems on transport, which has become mired in controversy. The Government has been accused of doing too little to tempt motorists out of their cars and on to public transport.

The train network is under extreme strain. Half the train operators are receiving far more subsidies than originally envisaged and a quarter of them are effectively run by the Government through the Strategic Rail Authority. All rail maintenance work has been taken back into the hands of Network Rail in the wake of the contractor Jarvis pulling out of its work on the tracks.

Mr Blair and Mr Brown are deeply split over the siting of an extra airport runway in South-east England, with the Prime Minister backing expansion at Stansted and the Chancellor supporting Heathrow. And in London, there are concerns about the safety of the Tube following two derailments in a single weekend earlier this month.

Crossrail was billed as an ambitious solution to the capital's transport problems.

Launching a consultation process in July, Mr Darling declared his support in principle for the scheme. "We see merit in the arguments for such an increase in capacity to support London's continued growth and success."

Ken Livingstone, Mayor of London, and business leaders in the capital argue that the west-to-east link between Heathrow and Ebbsfleet in Kent and Shenfield in Essex is crucial to relieving congestion.

One backer of the initiative said: "The Treasury is using the private-sector contribution as an excuse. They are desperate to find a way out of it somehow but don't want to take the political rap. They are trying to make the private sector the scapegoat."

Some senior figures at Mr Livingstone's Transport for London believe the money could be raised through levying a property tax in areas which would benefit from the railway. It is estimated £2bn could be raised through taxation.

Some business leaders believe the Treasury is being deliberately unrealistic by expecting companies and their bankers to give unequivocal guarantees for more than £3bn when the full details of the project were not yet known.

Many companies believe the Government's call for private funds too ambitious, whereas supporters argue it is essential to deal with overcrowding and failure to do so would mean that international businesses would move away from London.