HOPES for a high-speed North-South rail link were dealt a blow yesterday when a key study said it would be a "costly mistake".

The Government-backed Eddington report concluded the £14bn scheme to link London to Scotland would fail to deliver a big economic boost.

Instead, the report called for cheaper, small-scale improvements to tackle rail bottlenecks, such as better signalling, and longer trains and platforms.

The conclusion was widely seen as killing off the proposal for a 186mph North-South route, with a possible link to Newcastle.

Chancellor Gordon Brown had asked Sir Rod Eddington to set out a transport blueprint for the next 30 years and is expected to back its verdict in his pre-Budget report next week.

The Liberal Democrats said the strategy was "outdated" even before it was written, because the Stern report had, in the meantime, warned of the devastation of climate change.

Alistair Carmichael, the Lib Dem transport spokesman, described the report as a "big disappointment" that would fail to shift travellers from road and air to rail.

Councillor Mick Henry, chairman of the Association of North-East Councils, said: "We are disappointed that the Eddington Review did not endorse as a matter of priority the creation of a high speed North-South link."

He added: "We will continue to urge the Government to consider all of the options relating to high speed links."

But Sir Rod insisted business use of the high-speed train network in France was low and said domestic flights accounted for only 1.2 per cent of the UK's carbon emissions.

Meanwhile, a pay-as-you-drive charging scheme of up to £1.28-per-mile was "a no-brainer" if Britain was to avoid worsening road congestion, Sir Rod concluded.

Pilot schemes are expected to start by 2010, leading to a national system after 2015.

Manchester, Birmingham and Cardiff are the favourites to conduct the trials, with Tyneside, Wearside and Durham among the contenders.