£30 billion funding gap for transport

Thursday, 2 July 2009 12:00 AM

By Liz Stephens

As the East Coast mainline is nationalised, details emerged of a potential £30 billion reduction in capital expenditure for transport projects.

An industry memo, leaked to the Guardian today, warns of "looming spending cuts".

The news follows revelations from Lord Mandelson on Monday that plans to fund social housing projects would come from a "reprioritising of expenditure" between the Home Office and the Department for Transport.

Major schemes could be delayed or scrapped, including the £16 billion Crossrail project and the £6 billion road building programme.

The current cap on rail fares to one per cent above inflation could also be lifted, raising concerns that ticket prices will spiral.

The memo comes after a speech to a private industry seminar by the permanent secretary to the DfT, Robert Devereux.

Devereux indicated in his speech that future growth in capital expenditure would be flat and would no longer include a 1.25 per cent annual increase. The memo calculates this will mean the DfT would have £28.9 billion less to spend than expected on new projects over the next 10 years.

Financial constraints on transport spending were exacerbated by the announcement yesterday that the National Express will hand back its £1.4 billion East Coast contract at the end of the year.

GNER gave up its £1.3 billion contract for the same route only three years ago.

Relations between train operators and the transport secretary, Lord Adonis, are strained as operators struggle to honour promises made before the recession.

Lord Adonis warned that National Express could have all their rail franchises taken away.

"It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging," he said.

The DfT said today that the calculations in the memo referred to the department's "long-term funding guideline" and not to actual budgets, which will be set in the next comprehensive spending review.

However, the Office of Rail Regulation, which monitors expenditure on Britain's rail networks, has admitted that putting together the next five-year budget for the railways will be "tough".

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• crossrail
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• public services
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• rail
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• transport