Ken Livingstone has agreed to pay up to �4m towards the cost of a failed High Court challenge to block the government's controversial plans for a public private partnership (PPP) on the Tube.

Lord Lester of Herne Hill QC, who is appearing for Mr Livingstone, told the court they were withdrawing their case because they had little chance of success.

The claimants have decided not to continue further with these proceedings to apply to the court for permission for judicial review

Lord Lester

The government hopes its flagship PPP policy - which the London mayor has fiercely opposed - will introduce �16bn of investment into the London Underground.

Mr Livingstone's application for a judicial review was abandoned on the fourth day of a five-day hearing and was his second legal challenge to the controversial proposals.

'Embarrassing'

The decision is a major political setback to Mr Livingstone who made opposition to PPP the central plank of his successful campaign to be London mayor and he has fought it ever since winning two years ago.

It is also an embarrassing situation because, as mayor of London, Mr Livingstone will have to run the new PPP.

At the High Court, Lord Lester said: "In these circumstances, as responsible public servants and authorities, the claimants have decided not to continue further with these proceedings to apply to the court for permission for judicial review and have withdrawn their application."

Lawyers for Mr Livingstone were arguing that the arrangements for PPP violated European funding and procurement rules.

'A disaster'

The London mayor and Bob Crowe, the general secretary of the RMT rail union, have said they will continue opposing the PPP politically, but they do not have much time as the scheme is supposed to come in to force by the end of the year.

Mick Rix, general secretary of the train drivers union Aslef, said: "We still hope that (Transport Secretary) Alistair Darling will have a rethink on PPP because irrespective of legal technicalities it is a scheme that will be a disaster for the travelling public and the taxpayer alike."

The collapse of the legal challenge was welcomed by Transport Minister John Spellar, although he said he was disappointed the case had been brought in the first place.

"We said to the mayor and Transport for London, frankly, we didn't believe that they had a case, they shouldn't be wasting London council tax payers money."

But he told BBC Radio 4's World At One: "What we really want to do now is work with the mayor and Transport for London and with the infrastructure companies to get on with the job and start delivering the service for the travelling public on the underground."

'Taxpayers will pay'

Labour's Gwyneth Dunwoody, chairman of the Commons transport select committee, said she was saddened by the outcome of the case, but hoped that Chancellor Gordon Brown would think again about PPP.

"I do think this was one of the last opportunities to get some sensible and rational decision," she told WATO.

"It is very clear that the PPP is going to be exactly the same kind of mess that we had before and I am afraid taxpayers are going to come out of it rather badly."

Under PPP the Tube will be split into four main sections.

Two private consortia, Metronet and Tube Lines Group, will control the lines and infrastructure under 30-year contracts.

'Funding gap'

The running of trains and operation of signals will remain under public control.

Recent reports suggested the government wanted the first substantial contracts with the private-sector consortia signed by the end of this month, but that is now expected to be delayed.

These contracts involve the Tube Lines consortium, which will take over the Jubilee, Northern and Piccadilly lines.

Mr Livingstone and Transport for London have argued that PPP, as currently planned, will create a "funding gap" of �1.5bn.

If this was not covered by government guarantees, this would require a 25% fares increase, significant increases in council tax or major cuts in other vital transport programmes, or a combination of these.

Mr Livingstone and his team claim London simply cannot afford PPP, based on current funding promises.

They have also argued that regulations were breached when London Regional Transport and London Underground Ltd deprived themselves of the opportunity to obtain either the lowest price or what was economically the most advantageous offer.