Network Rail, which operates tracks, signals and stations has just started two-year negotiations over its funding requirements for the next control period from 2009-2014.

The not-for-profit operator has asked for an extra 8 billion sterling on top of the 20.7 billion it claims is necessary just to keep the network running. It was given 25 billion sterling for the current control period which ends in 2008.

The extra cash would be used to deal with problems such as overcrowding on services in the South east of England.

Twigg told the Transport select committee that most of the increased expenditure on the network in the last four years since Network Rail took over from Railtrack 'has been down to the major renewals and maintenance work that has been undertaken by Network rail because of the decades of under-investment'.

'Obviously you would not need to have that amount of money in terms of the future, but having said that we need to look at what we've got to do in terms of capacity...and also a way to maintain the maintenance and renewals and also the safety aspects,' he said.

'I think you can expect improvements in capacity...in terms of the next control period.'

'Clearly there are a number of infrastructure improvements that can be made to improve capacity.'

If it gets its way, Network Rail will spend 4 billion sterling of its extra cash on extending the Thameslink commuter system with the aim of running 24 trains an hour, or a tripling of services.

Some operators in the South East have said they will raise fares during peak periods to price commuters not travelling to work off the system to create capacity.

FirstGroup PLC was forced to back down on planned fare restrictions on rail fares on its London routes after pressure from passenger watchdogs.

First said it is reducing the number of stations affected by the new restrictions introduced on June 11 after complaints from London Travelwatch and Passenger Focus.

The company, which took over the Thameslink and Great Northern rail routes from National Express Group PLC in April, banned the use of cheap day returns on northbound weekday services from London to stations outside the London Travelcard zones between 4.30pm and 7pm.

First said the measure was primarily designed to reduce overcrowding and said it was only expected to result in a small increase in revenue.

However, watchdogs criticised the measures, saying they effectively represented large fare increases and would discourage public transport use.

Earlier this week the Conservative Party, who were responsible for the disastrous splitting up of the network a decade ago when in power, admitted they had blundered.

Shadow transport secretary Chris Grayling said creating one firm to manage track and then franchising out train services had increased the costs of running the network and delayed decisions on capacity expansion.

'We think that the separation has helped push up the cost of running the railways and hence fares and has slowed decisions about capacity improvements. Too many people and organisations are now involved in getting things done so nothing happens,' Grayling said.