State may be left with £26m rail freight bill

The Government took on an unnecessary risk when it agreed to hand over Britain's rail freight distribution to the private sector with £242m in sweeteners, a Commons committee said last night. The Public Accounts Committee said further payments might still have to be made. An agreement that British Rail would continue to pay Eurotunnel for the use of the Channel Tunnel for freight could cost £26m before it ran out in 2006.

The Government took on an unnecessary risk when it agreed to hand over Britain's rail freight distribution to the private sector with £242m in sweeteners, a Commons committee said last night. The Public Accounts Committee said further payments might still have to be made. An agreement that British Rail would continue to pay Eurotunnel for the use of the Channel Tunnel for freight could cost £26m before it ran out in 2006.

The committee said even though Railfreight Distribution made a loss of £64.5m in the year to March 1996 - the last full year before its sale in November 1997 - the Government could have done more to cut its losses. It should have taken action to encourage growth in rail freight before it sold the service, its report said.

When Railfreight Distribution was sold to English, Welsh and Scottish Railway Holdings (EW&S), the Government agreed to make net payments of £242m over eight years, at today's prices. It also agreed to underwrite the risk of lost business should EW&S decide to discontinue its freight services through the Channel Tunnel. The report suggested the sale had undermined competition in the rail freight industry.