Watchdog demands £1.5bn

Taxpayers face a huge extra burden when the Rail regulator tomorrow defies ministers to demand a further £1.5billion a year in subsidies for the industry.

Tom Winsor is set to insist that Network Rail, the not-for-profit body which took over track maintenance from Railtrack, needs £24 billion over five years to keep the rail network in good shape.

The figure is 50 per cent above the total set aside for rail in the Government's 10-year transport plan.

Transport Secretary Alistair Darling was reported to have clashed with Mr Winsor in a heated on Monday as the regulator prepared tomorrow's statement.

A Whitehall source said there had been a "vigorous exchange views," and added: "Alistair expressed his frustration after Tom refused to take on board certain ideas that had been put forward as a means of reducing the figure."

The Government spending projections would have required budget cuts including a £600 million reduction in maintenance on rural and freight lines.

Mr Winsor ruled that the savings package, worked out by the Department of Transport and the Strategic

Rail Authority, would have brought an unacceptable fall in performance.

The regulator's decision to stick to his guns will force Mr Darling to find funds elsewhere or appeal to the Treasury for extra money.

Two further options, a sharp rise in rail fares or the closure of little-used rural branch lines, are likely to be ruled out as politically unacceptable.

Tomorrow's announcement by Mr Winsor will be a provisional ruling, with the final verdict due in December. In his response tomorrow, Mr Darling is expected to say that he hopes to find a way to bridge the gap between his budget and the regulator's demands.

Part of the solution could involve Network Rail stepping up its borrowings. But as these are guaranteed by the taxpayer, the public purse would still be hit.

Government subsidies are paid to train operating companies, which in turn pay Network Rail for access to Britain's network of tracks.