Many local authorities have found it difficult to take forward improved services because of the potentially high running costs involved. Under this new approach, after a successful trial period, local authorities could ask the DfT to consider supporting the services through a franchise agreement.

To benefit from the new arrangements, the new or enhanced service would have to have been run successfully for the first three years and show good value for money.

The Government could then decide to take on long term financial responsibility for these successful services, easing the burden on local authorities and ensuring the continued operation of a service which is benefiting passengers.

Transport Secretary Geoff Hoon said:

"This new approach could bring real benefits for passengers by encouraging local authorities and train companies to work together to introduce new or improved services.

"The availability of funding should provide the encouragement local authorities are looking for if they believe there's a sound case based on passenger demand for improving a service or bringing in a new one. "

To take advantage of the new scheme local authorities must first identify the best way of meeting a local transport need. If a train service offers the best solution and has support from the rail industry, the local authority must then show that the rail scheme has a business case, secure the necessary start-up capital funding, (through sources such as the Regional Funding Allocation), and commit to funding the service for at least three years.

If successful the new service could then be included within a franchise agreement, guaranteeing its future operation. Services which have proved successful could get funding from April 2014, from a budget set in 2012.

The enhancement package (including any service reductions proposed to fund it) must demonstrate a business case (BCR in excess of 1.5) before implementation.

The promoter agrees to fund any additional subsidy requirements arising from the provision of the new service for a period of three years (and remains on risk for a DfT decision not to support the scheme) OR identifies decrements elsewhere or new revenue sources (which would need to be agreed with DfT) on the local/regional network (including fares increases above RPI+1%) which would contribute to a reduced overall subsidy requirement.

Should continuing the service demonstrate a BCR in excess of 1.5, subject to affordability within the set budget, DfT would consider taking on the responsibility of funding its continuation after year 3 alongside other services within a franchise, OR if funding is not available, invite the region to identify decrements to enable the service to continue.

Should continuing the service demonstrate a BCR of between 1.0 and 1.5, DfT and the promoter would negotiate but with no presumption of Government funding.

Should the BCR be less than 1.0, DfT would not provide any funding.

DfT would not propose to take any financial responsibility until the start of CP5 (April 2014), hence services which start before April 2011 would need to be funded wholly by the promoter for a period of more than 3 years.