Blair agrees huge cash boost for rail

Britain's "Rail Tsar", Sir Alastair Morton, has won the backing of the Prime Minister for hundreds of millions of pounds worth of investment for the railway network.

Sources close to John Prescott's transport department confirmed Mr Blair has accepted the case for investment - a change of heart that puts him at odds with his Chancellor, Gordon Brown, who is not convinced the rail network needs more subsidy.

A senior source at the Department of Environment, Transport and the Regions said: "Sir Alastair is quite an operator. All the signs are that he has won over the Prime Minister to his way of thinking."

Sir Alastair wants around £1bn extra a year in subsidies from the Treasury to ensure levels of investment he sees as vital for rescuing the rail network. He believes only Government subsidies can generate the private funding Railtrack needs to deliver the proposals in its £52bn Network Management Statement. Sir Alastair said he was in no doubt the Government supported the logic of the approach but stressed that to provide the subsidies needed it would have to increase funding in the summer's comprehensive spending review.

Sources at the DETR also believe Mr Blair is committed to financing Mr Prescott's 10-year transport strategy when it is published in the summer.

Sir Alastair, the former chairman of Eurotunnel, was appointed by Mr Prescott last year to shake up the rail industry and provide a strategic approach.

He quickly identified declining Government subsidies as a significant problem for the franchises operating railway services. He suggested creating longer franchise periods during which the level of Government subsidy would remain constant. Earlier reports had said Sir Alastair was prepared to resign unless there was a huge increase in taxpayers' subsidies to the railways.

Railtrack estimates it will need £2bn a year in subsidies to generate the levels of investment it needs to improve track and signalling. At the moment the rail industry receives £1.3bn in Government subsidy, a figure which is forecast to fall under current Treasury spending forecasts.