A heated clash between ministers and the City over funding London’s £16 billion Crossrail east-west link has left the fate of the project in the balance, with deeply entrenched positions on both sides leaving hopes of a go-ahead this year in growing doubt.

The City of London Corporation dug in its heels this week against government demands that it should raise an extra £300 or £400 million from businesses in the Square Mile to clinch the funding package needed for the long-delayed link, to get a green light.

The Times understands that ministers are determined that the City, as a beneficiary of Crossrail, must pay the extra contribution, which is barely more than 2 per cent of the total bill.

With the effective deadline of next month’s three-year Treasury plans for government spending, which ministers still hope will seal plans for Crossrail, now looming, time is fast running out for a deal to be brokered.

A Whitehall source said it was a game of chicken. “They [the City Corporation] think that if they hold out, we will blink. We won’t,” the source said.

Ruth Kelly, the Transport Secretary, wants agreement by next Tuesday. Ministers are already satisfied with private sector funding pledges from Canary Wharf and from BA and BAA, the airports operator.

The Government is pressing for the City to use fundraising mechanisms, such as planning consent levies, to find the cash. Present City plans are for a 4p in the pound rise in business rates from the present 44p level to meet its obligations to the project.

But Michael Snyder, chairman of the Corporation’s policy and resources committee, said: “Those businesses in the Square Mile being asked to pay more for Crossrail are entitled to ask why the billions they pay in taxes are not already enough,” he said.

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