Ministers face crunch over funds for Tube

London Underground needs money desperately. But months of Whitehall wrangling has produced nothing. Randeep Ramesh, Transport Correspondent, examines the looming clash between John Prescott and Gordon Brown.

With two forthcoming White Papers, on transport and the capital's future government, a decision on the Tube cannot be delayed.

The Tube, which ferries more than 1.6 million people every day, is falling apart and in dire need of cash. Next year it will receive pounds 300m for its "core" operations. That is pounds 50m short of the amount needed just to stop the rot. To clear the "investment backlog", the service needs more than pounds 1bn.

With no public cash available, three sets of city experts have been drafted in to help solve the problem of how to inject private capital into the Tube. John Prescott, the Deputy Prime Minister whose brief covers transport, hired Price Waterhouse to find an answer. The accountants recommended splitting the infrastructure into four parts and selling 51 per cent stakes to the private sector.

Mr Prescott disagreed. He had in mind two options. One would be to relax the Treasury borrowing requirements - allowing a public sector Tube to borrow money from the City without adding to the national debt. As the public sector body makes an operating profit of pounds 170m a year, it has the money to borrow with. Other cities - notably New York - use this method to fund subway schemes, but the Treasury is not impressed.

Another Prescott plan was to lease all the infrastructure - the tunnels and the tracks - to one company for 30 years. The only firm big enough handle that large a contract is Railtrack, which offered ministers a minority stake in the company in return.

Geoffrey Robinson, the Treasury minister dealing with Mr Prescott, turned to four big businessmen. They advised Mr Robinson to split the Underground infrastructure into three companies and franchise them and the train operators - such as the Victoria Line - to the private sector. Mr Prescott is unlikely to wear this.

Lazards, the merchant bank hired by LU, has come up with an analysis to bury arguments that advocate any break-up. The bankers instead propose either a privatised monopoly or a public one that operates "on commercial terms".

Meanwhile, Downing Street appears ready to "bash heads together". Geoff Norris, the No 10 policy adviser on transport, opposes state control and favours a quick sell-off. A decision has been slated for the end of this month.

Any move to sell-off the underground will anger the unions. Jimmy Knapp, general secretary of the Rail, Maritime and Transport Union, said: "I find it astonishing that when the media is full of stories condemning privatised rail services, Treasury officials are advocating the same policy for London Underground. It makes absolutely no sense."