NETWORK RAIL'S costs could increase by hundreds of millions of pounds if the government forces it to borrow instead of raising track access charges, industry sources said this week.
But it is thought higher borrowings would give greater stability to rail spending than a commitment from the government to raise subsidies.
Such a commitment could leave Network Rail vulnerable to public spending cuts, said industry sources.
The track operator is at the centre of a row over how much it should be allowed to spend on the rail network over the next five years. Rail regulator Tom Winsor has publicly fallen out with transport ministers over who has the final say in setting track access charges.
Winsor is expected to announce next month that Network Rail needs £22.7bn to run the railways for the next five years. But this figure is almost £8bn more than the amount originally set aside by the government.
Network Rail is likely to have to borrow money to make up the shortfall if the government refuses to allow the increase.
Over time this would be more expensive than government subsidy.
Network Rail's borrowing costs are more expensive than government borrowing because Network Rail loans do not carry a full government guarantee.
Instead they are backed by a 'comfort letter' which offers reassurances from the government that loans will be repaid.
One industry source said that increasing government funding commitments could leave Network Rail vulnerable to public spending cuts.
'If Network Rail takes out a loan, the money will stay in the rail industry and projects can be completed undeterred by economic fluctuations, ' he said.
lNetwork Rail announced sixmonth losses of £233M with turnover sticking at £1.5bn last week. The loss before taxation was up £230M compared with the previous six months.