Taxpayers to pay billions to rescue rail network

Britain's crumbling railways will need billions of pounds of taxpayers' money to prevent huge cuts in the number of services and further delays in journeys.

The disclosure that the public will have to foot the bill over the new cash crisis comes just two days after Connex was sacked from operating trains after years of poor services.

The demand for additional cash will be made this week by Network Rail, the company which took over rail infrastructure last year from Railtrack, which will warn that at least an additional £1bn a year is needed for the next decade. This is on top of the £10bn subsidy it has already said it needs to cover budget deficits until 2006.

The extra money will be needed despite promised 'efficiency savings' of £1.3bn a year after 2006. These involve axeing 2,000 jobs from the 14,000-strong workforce over three years.

Tom Winsor, the rail regulator, will face the new demand for extra money tomorrow, despite growing public anger over Network Rail's performance to date. Rail services have been cut back, fares hiked at rates higher than inflation, and last week it was revealed that the company's top directors could earn bonuses of up to 60 per cent of their salaries.

The Government now faces a huge new bill or risks having to allow unpopular cuts in the quality and number of services. The issue of failing trains and safety risks has been a constant source of embarrassment to the Government, which has promised - and failed - to get more people to use public transports to tackle congestion on the roads.

The news of the cash crisis prompted a furious reaction from the rail unions last night. Bob Crow, general secretary of the RMT, said: 'On the infrastructure side and the train operating side there's a crisis. What we need is root-and-branch reform. From our point of view that means renationalisation.'

The crisis comes as it emerged last night that senior government officials are now so concerned about high costs and poor performance that they are also considering restructuring Network Rail only eight months after it was set up.

Senior figures at the government's Strategic Rail Authority confirmed Network Rail could have to be reformed - even though they acknowledge the problems were inherited from Railtrack and a year in administration after government declared Railtrack bankrupt in 2001.

'Even though it [Network Rail] is quite a new creature, there isn't enough evidence yet they are on top of the job... You wouldn't want to bet your mortgage on them succeeding,' said one SRA insider.

One idea being considered would be to divide Network Rail's engineering work into separate regional companies, in the hope competition would help reduce costs. Some believe the regional infrastructure companies could then be reintegrated with train operators.

There is also pressure in some quarters for government to take full state control of the company. News of another possible restructuring in the railways will get a mixed reaction in the industry, which has had a turbulent three years, particularly after the privatised Railtrack was declared bankrupt in October 2001.

Network Rail was designed by government to replace it as a company which has a board of members representing the public interest instead of shareholders and will not pay dividends.