Brown's £2bn Tube bail out

The Government is having to pay £2billion to clear the debts of failed Tube contractor Metronet, it was revealed today.

The Department for Transport must hand over the money after Metronet's backers called in their loans. It marks a major humiliation for Gordon Brown who as Chancellor was the chief architect of the private public partnership deal behind the debacle.

Metronet had originally raised the cash to cover the cost of its contracts to maintain and upgrade seven London Underground lines. But it went into administration last year with the debt outstanding.

Conservative transport spokesman Stephen Hammond said: "This is an extraordinary sum of money. The contracts should have been more tightly written. We,the taxpayer, are now underwriting the cost of Gordon Brown's failed PPP."

Under the arrangement, pushed through by Mr Brown in the face of fierce opposition, Metronet's backers are entitled to have all their debts repaid exactly six months after the company went into administration.

The Government has been forced to pick up the bill on behalf of Transport for London which is seeking to take over Metronet. "Metronet raised this money and should have invested it effectively, it failed," said a TfL insider.

The complex financial arrangement sees the Government hand over £2 billion to TFL which will in turn pay the money to Metronet's lenders.

TfL said the failure would not cost the London farepayer any more money. But it was unclear exactly how much the taxpayer would be out of pocket.

Insiders said that until TfL got its hands on Metronet's books it was impossible to tell how much work they had done and at what cost.

London Underground managing director Tim O'Toole said: "Our priority remains the removal of Metronet from PPP administration as quickly as possible. A great deal of progress has already been made. Tube services continue to operate safely and reliably for passengers, as they have done throughout the period of PPP administration."

Today's arrangement was triggered by the banks whichwere entitled to call in their debts - a process known as the Put option - from Metronet exactly six months after the company went into administration.

A Department of Transport aide said the deal was equivalent of someone having to pay off their mortgage early.

In a statement a spokesman said: "The settlement gives London Underground the resources needed to manage Metronet's administration and move toward a more stable long-term footing and continue the work to maintain, renew and upgrade the Underground.

"This will have limited net impact on public finances since Metronet's borrowing was already part of the Government's balance sheet."

Metronet, the largest of the two private firms upgrading the Tube, collapsed after running out of cash. Despite receiving around £70 million a month of government money to upgrade nine of the 12 Tube lines - all but the Jubilee, Northern and Piccadilly - it forecast a £2 billion black hole.

This put it in dispute with the Mayor, who frequently condemned the firm as incompetent and called for its directors to be "hung, drawn and quartered".

This condemnation, combined with delays in its work, caused its share price to crash. When it applied for an extra £550 million to keep it going but received only £121 million, the company was put into administration. Despite the collapse, TfL performed a miracle and kept services running - though many of the station upgrades have been put on ice.