Much needed improvements to the rail network, including schemes to reduce overcrowding on trains, have been thrown into doubt today by a £3 billion shortfall in the funding proposed for Network Rail.

The Office of Rail Regulation wants to trim Network Rail’s budget for the five years from 2009 to 2014 to £26.5 billion, almost £3 billion less than the rail infrastructure group has asked for.

As part of its proposed funding deal it is demanding that Network Rail cut operating, maintenance and renewals costs by a fifth, at the same time as making significant improvements in train punctuality.

The budget for capital investment in the rail network has been cut from Network Rail’s hoped-for £9 billion to £7.5 billion.

The capital investment programme was to go towards a major programme of network improvements including the long-delayed £5.5 billion north-south, cross-London Thameslink scheme, a £425 million rebuilding of Reading station in Berkshire and the remodelling of Birmingham New Street station.

Iain Coucher, chief executive of Network Rail, said: “On the face of it, the proposed funding settlement is insufficient. I am extremely concerned that the funding settlement outlined today will put our plans to meet rising demand at risk.”

The railway is seeing the highest level of passengers since 1947 but the aging infrastructure is creaking at the seams and overcrowding has become a problem on many commuter routes into and out of major cities and the capital.

Mr Coucher said that while demand for more and better rail services continued to grow, it was vitally important for Network Rail to receive the right level of funding so that it can deliver the railway that the country needs in the next decade.

Anthony Smith, chief executive of customer watchdog Passenger Focus, said: “It is right that pressure is put on NR to deliver the railway at the most cost-effective price. However, the ORR must be realistic and not force NR to deliver a railway on the cheap. Forcing them to scrimp and cut corners will mean a poorer service for passengers.“

Network Rail has been under particular scrutiny this year because it has struggled to complete high-profile engineering projects on time. At New Year hundreds of thousands of passengers were forced on to buses when the West Coast Main Line between London and the Midlands failed to reopen after engineering works that were scheduled to take place over the holiday.

There were further problems on the same line over the Easter holiday and the early May bank holiday, all due to major engineering projects at Rugby and Milton Keynes.

Train operators like Sir Richard Branson’s Virgin Trains are deeply sceptical that the rail infrastructure group can deliver improvements to the West Coast Main Line in time for a new timetable in December.

The ORR has fined Network Rail twice in the past year for overrunning engineering works.

Network Rail has made steady progress in reducing costs, but it has failed to meet its own targets for cutting delays and still consumes three times as much subsidy as British Rail did.

According to ORR data, it is also less efficient than several publicly owned networks on the Continent. The ORR has fined Network Rail twice in the past year for overrunning engineering works that have affected hundreds of thousands of passengers.

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