Crossrail, the scheme to build main line rail tunnels under Central London, edged closer to construction yesterday when the City of London pledged £250 million towards the £16 billion cost.

The new east-west line would expand London’s rail capacity by 10 per cent, linking Paddington and Liverpool Street stations and providing an alternative to the Central and Piccadilly Underground lines.

The tunnels, due to open in 2017, would be used by a direct service between Canary Wharf and Heathrow, cutting half an hour off the current journey time. More than a million commuters a day would be able to catch trains in Berkshire, Essex and London’s suburbs and travel directly to work without needing to change on to the Underground.

Demolition of buildings on the site of the planned Crossrail station at Tottenham Court Road is due to begin in the spring. The boring of the tunnels is expected to begin in 2011.

Lord Adonis, the Transport Minister, said the deal was worth up to £350 million. However, it later emerged that £100 million of that sum was in the form of voluntary contributions that have yet to be agreed with the 150 biggest companies in the City.

Sir Michael Snyder, deputy chairman of the City of London’s policy and resources committee, hinted that businesses could be forced to pay the £100 million through an extra increase in business rates if they failed to make voluntary contributions. Larger businesses in London are already facing an extra 2p in the pound on business rates to raise £3.5 billion for Crossrail.

When asked by The Times if the funding for Crossrail was now guaranteed, Lord Adonis said “the funding package is coming together”.

Boris Johnson, the Mayor of London, said: “Crossrail is vital to London and the UK, providing an enormous boost to the economy and, in the tough economic times ahead, creating thousands of jobs linked to its construction.

“This is one of the times when you have to invert the normal laws and say ‘get in that hole and keep digging’.”

Crossrail will run for 74 miles from Maidenhead and Heathrow in the west, through new twin 13-mile tunnels under Central London connecting key London stations, including Paddington, Bond Street, Tottenham Court Road, Liverpool Street and Canary Wharf and on to Abbey Wood and Shenfield in the east. When complete, the railway will operate 24 trains per hour in each direction through Central London during peak times.

Crossrail will be the biggest construction project in Europe. Between 2013 and 2015, up to 14,000 people will be employed to build it.

The Department for Transport is providing £5.6 billion of the cost and the Greater London Authority, Mr Johnson’s executive, has guaranteed £7.7 billion, partly backed by future Crossrail fare income.

Canary Wharf Group and Berkeley Homes will also contribute through the construction of new stations at the Isle of Dogs and Woolwich respectively. BAA, Heathrow’s owner, agreed a £230 million funding package for Crossrail last month.

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