John Prescott's statement to the Commons

In a Commons statement, Mr Prescott said he had signed a new statement of principles with London Continental Railways and Railtrack which reduces public liability.

He said it was: "A deal which is good for integrated transport, good for the environment and good for the taxpayer".

New financial arrangements

Mr Prescott called the original agreement made with LCR under the previous government "appalling" and "flawed from the start".

As a result he had rejected a plea made earlier this year by LCR for an additional £1.2bn of public money to finish the project.

Under the new agreement the government grant for the link remains at £1.8bn and there will be no need for extra government money before 2010.

After then, the government will make an extra cash contribution of £140m and not the widely leaked figure of £700m, he told MPs.

The deputy prime minister said the government's share in the project's benefits should see its extra money returned from 2020, as from that date the government will take a 35% share of LCR's pre-tax profits and a 5% stake in the Eurostar management company.

If LCR sells its share in the operation, the taxpayer would share 35% of the proceeds.

The rest of the new arrangement sees the government underwriting £3.7bn of LCR bonds to be raised in the City to finance the deal.

Two stages

Mr Prescott said that the link would be built in two stages - finished by 2003 and 2007 respectively. Construction of the first phase will begin this year.

Responding to allegations that the second, more expensive phase, would never be built, Mr Prescott insisted that the contract obliged LCR to build the whole link and to the same high standards as the original contract.

In addition, he said: "In 2086, this railway and the Eurostar service will revert to public ownership, along with the Channel Tunnel itself."

As well as its new agreement with the government, LCR has also secured a new partner to operate Eurostar cross-channel trains.

The operator will be a consortium made up of British Airways, National Express and the national railways of France and Belgium. A bid for the contract from Virgin was unsuccessful.

The consortium will establish a service from Heathrow airport to Paris by 2001. Mr Prescott has also asked for the possibility of Eurostar regional links to be examined within the next year.

'Churlish'

The new shadow secretary for the environment, transport and the regions, Gillian Shephard, challenged Mr Prescott to confirm the taxpayer was "standing behind the scheme to the tune of ... £5.64bn", asking if this was "nationalisation by the backdoor".

But Mr Prescott said the £3.7bn of bonds that the government was underwriting did not count as public spending, and he branded Mrs Shephard's behaviour at the despatch box as "churlish".