MacGregor denies rail subsidy surge: Civil servants' report says privatisation could cost an extra pounds 1.5m

THE GOVERNMENT was back on the defensive over the privatisation of British Rail last night after John MacGregor, the Secretary of State for Transport, had to disown an official warning that rail subsidies could rise by pounds 1.15bn next year to meet the costs of privatisation.

The suggestion that the costs of the railways to the taxpayer will more than double in 1994-95 because of privatisation is made in a leaked report of the Restructuring Working Group, which includes senior civil servants.

The document, which lays out the total grant costs under arrangements in which the new franchise operators trade with the new Railtrack authority on a commercial basis, says that, assuming an 8 percent return for Railtrack, 'the central government grant requirement would total some pounds 2bn in 1994-95', compared with pounds 850m at present.

The suggestion that profits of the franchise operators will have to be intially cushioned by the taxpayer follows skilful parliamentary footwork by transport ministers in defusing a threatened backbench revolt today and tomorrow in support of a Lords amendment designed to give BR equal rights to bid for rail franchises. The Government has decided not to overturn the amendments but has tabled its own, heavily circumscribing that right.

Last night, the department said that neither Mr MacGregor nor senior officials 'recognised' the pounds 2bn figure and said the report appeared to be one of as many as 90 produced by the group.

The department acknowledged that ministers expected some costs to increase initially as a result of restructuring, but believed that in the medium-to-long term the greater efficiencies would be to the advantage of the taxpayer as well as the passenger.

Asked about the pounds 2bn figure on BBC Television's On the Record yesterday, Mr MacGregor said: 'It is not necessary to have it on that scale because this will be built up over a period.' It would be for the Government to decide in the normal public expenditure rounds on how much goes into the franchises and thence into Railtrack.

Brian Wilson, Labour's rail spokesman, said last night that the report demonstrated that if services were to be maintained at their present level, 'fragmentation of the railways will cost the taxpayer very much more than at present'.

The pounds 2bn projection appears to build in profit elements for Railtrack, train leasing companies and train operators. In 1994-95 services will still be run by divisions of British Rail as 'shadow franchises'.

The report envisages a gradual decline in subsidy after what it calls 'a large upward leap in 1994-95'. Mr Wilson claimed last night that 'in the world of real as opposed to shadow franchises', the demands of private operators would be in excess of the margins assumed in the working group's calculations. 'Some of the money earned by Railtrack and leasing companies would return to the Treasury, but, as the document acknowledges, the net requirement for subsidy would be far in excess of the present level if anything like present services were to be maintained.'

A Labour government will renationalise the railways, John Prescott, the party's transport spokesman, vowed yesterday. Mr Prescott said 80 per cent of the public wanted it to remain a British Rail system. He said on Breakfast with Frost: 'It will be going back to a publicly owned network to meet people's needs, not to meet the needs of private greed.'