Fewer passengers use Sheffield's Supertrams than expected

The National Audit Office (NAO) said some systems were losing money, did little to cut traffic and did not link to other transport modes.

It said the losses discouraged private firms from investing in new systems.

Transport Secretary Alistair Darling said he would look at other options if trams did not provide value for money.

Seven light rail - or tram - systems have been built since 1980 and another 12 are being developed, with �1bn of government investment.

However, major barriers were preventing further expansion, the government spending watchdog warned.

BBC News Online speaks to passengers at the Croydon Tramlink in south London In pictures

The NAO report cited the example of the Sheffield Supertram - in operation since 1994 - which was expected to raise �80m on privatisation, but in fact attracted only �1m.

Passenger numbers were 45% below expectation on the South Yorkshire line, while numbers on the Midland Metro were 38% down, the NAO said.

The Midland Metro, Manchester Metrolink, Croydon Tramlink and Tyne and Wear Metro were all running at a loss, with Midland Metro losing �11.4m a year.

Sir John Bourn, head of the NAO, said: "Systems need to be better integrated with other modes of transport to attract more passengers and help to reduce urban congestion.

"If more systems are to secure private sector investment, construction costs must be brought down and placed on a sound financial footing."

Trams give a city a touch of continental chic, an image of wide European boulevards with gleaming trolley-cars gliding past Tom Symonds BBC transport correspondent Trams: Chic but not cheap

Mr Darling told BBC Radio 4's Today programme tram usage had increased by 86% between 1997 and 2003, but that the government was taking a tough line on future funding.

"One of my big concerns is that the costs of these new schemes have doubled in some cases," Mr Darling said.

"If costs are going to carry on doubling then any government is quite right to say 'well, let's have a look at it and let's see if there aren't other alternatives'.

"If we are going to build these things then we have to make sure that we get value for money from them."

Commons public accounts committee chairman and Conservative MP Edward Leigh said the government has not been active enough in implementing tram systems.

A new tram system for Liverpool is under discussion

"The Department of Transport has taken a hands-off approach compared to our continental competitors.

"The department has allowed tram systems to be built that have no through ticketing arrangements, unco-ordinated timetables, and trams have not been given priority over road traffic," he said.

Conservative transport spokesman Damian Green said: "The Department for Transport has talked about 25 new light rail lines but the report makes it clear that it has no strategy for achieving this growth."

But a spokesman for the Passenger Transport Executive (PTE) group said the NAO report had shown how light rail "can be delivered faster, better, cheaper".