Deputy Prime Minister John Prescott has said he is in favour of selling bonds to raise billions of pounds for new railway projects.

But he hinted that any such plan would be likely to meet with opposition from Chancellor Gordon Brown and the Treasury.

I have always believed that bonds are a useful tool in financing large capital projects like the railways

John Prescott

On Tuesday, the government's Strategic Rail Authority (SRA) said it was considering selling bonds with returns guaranteed by future fares.

Although the bonds would be backed by the SRA they would not appear on the government's balance sheet.

On the same day, Transport Secretary Alistair Darling appeared to distance himself from guaranteeing bonds issued by private companies.

No firm proposals

At a private finance initiative conference on Wednesday, Mr Prescott said he was in favour of the bonds idea, although he was not sure it would get Treasury backing.

"I have always believed that bonds are a useful tool in financing large capital projects like the railways," Mr Prescott said.

"The government has already issued bonds to finance the Channel Tunnel Rail Link, which we rescued this summer. But obviously, this needs discussion with the Treasury."

Adrian Montague, deputy chairman of Network Rail, said he supported the SRA's plans for a bond issue, saying major enhancements to the rail network should be financed by bonds raised by the SRA through special purpose vehicles.

Network Rail was itself planning to dip its toe into the bond market later this year in what is intended to be the first of several arrangements to raise finance through bonds for maintenance of the rail network, he added.

Too early

A Treasury spokesman said that it was too early for any minister to take a view because the SRA had not come up with any firm proposals and was still considering a range of ideas.

The government has promised to pump �65bn into the railways by 2010 - half of which has to come from private companies.

Firms have already committed about �7bn and the SRA, which is responsible for awarding licences to run trains and organising investment, is looking at ways to raise the rest.

When the Channel Tunnel rail link project hit problems John Prescott agreed that the government would guarantee the bonds issued by the developers.