Network Rail has promised to increase capacity

Results for the six months to September show a �747m profit, which the not-for-profit firm, set up in 2002, is to spend on network improvements.

The company cut �1bn in costs and is getting delayed government payments.

Network Rail chairman Ian McAllister said punctuality had improved: "From being a basket case a few years ago, rail is now a success story."

The next objective is getting train punctuality - currently at its highest level for seven years - above 90%, he said.

"We've taken over a billion pounds out of the cost of running the railway, which is good news for the taxpayer and the fact that we're now making money means that we can use that to invest in building the railway.

"Passenger numbers have gone up by approximately 40% over the last 10 years and we think they'll rise by 30% over the next 10, so we have to plan ahead and that's what we're doing right now."

Running more trains, making them longer and encouraging people to travel outside peak hours were ways the company was trying to increase capacity, he said.

Network Rail replaced private firm Railtrack in 2002 and receives about �4bn a year in subsidy.

It has no shareholders and must invest profits into the infrastructure.

In May, it announced a pre-tax loss of �232m for 2005-6, which it blamed on paying interest on money it had been forced to borrow.

NETWORK RAIL RESULTS �747m profit for six months to 30 September �1.1bn savings made in 18 months �1.5bn extra invested in last six months Pricing 'can fund new roads'

The profits are partly due to delayed payments, because when the rail regulator set the firm's five-year funding levels in 2004, Network Rail agreed to defer increases in its first two years.

A spokesman said savings of more than �1bn had been made by taking maintenance in-house, increasing the use of automated technology and renegotiating contracts with suppliers.

Shadow transport secretary Chris Grayling said Network Rail was not doing enough to deal with overcrowding and money set aside money for capacity improvements was not being spent.

"So inevitably, passengers will be sceptical about promises of improvements to come," he said.

Economic impact

The train drivers' union Aslef said regular services and decent conditions were more important than "pound notes".

But Anthony Smith, chief executive of watchdog body Passenger Focus, said the announcement was good news.

"The more profit Network Rail makes, the more it will be able to invest in essential improvements for passengers," he said.

Next week the former chief executive of British Airways, Rod Eddington, will publish his report into the long-term impact of transport decisions on the UK economy.