THE cash-starved Strategic Rail Authority (SRA) dealt the region a bitter blow yesterday as it shelved plans for the £3.5bn upgrade of the East Coast Main Line.

The SRA has scaled back proposals for the London-to- Scotland route and other major rail improvements across the country as it battles to cut spiralling costs.

Business leaders and passenger groups said they were bitterly disappointed by yesterday's announcement.

The original proposed East Coast Main Line upgrade was predicted to bring up to 2,000 jobs to the region and boost the local economy by about £100m a year.

But in a revised version of its strategic plan, the SRA has downgraded it to a scheme costing less than £1bn.

Some work will go ahead at Allington, in Lincolnshire, to provide a chord separating fast and slow trains. Improvement work will also be carried out further south. But plans to increase train frequencies have been put on hold "subject to affordability".

George Cowcher, chief executive of the North-East Chamber of Commerce, said: "The railway system nationwide is being neglected and mismanaged, and this continues to be a major barrier to our economic development in the North-East.

"We want to see more tangible work put into actual improvements to the rail network rather than more feasibility studies."

Ernie Preston, secretary of the North-East Rail Passengers' Committee, said he was disappointed that smaller scale works, such as upgrades of local rail stations, had been hit.

"It's a sad day for the North of England," he said.

But the slimmed-down plans include a possible new £6bn North-South rail link by 2015 capable of carrying trains to rival France's high-speed trains with speeds of up to 200mph.

A spokesman for East Coast Main Line operator GNER said: "We understand realistically that the SRA has only got so much money to spend."

Other plans being deferred include the TransPennine to South Humberside freight service improvement scheme, the east London line extension and the north-south cross-London Thameslink.

Some projects emerged unscathed, including the £9.7bn West Coast Main Line and the £1bn contract for a power supply upgrade in the South.

The rail industry's operating deficit has risen from £200m in 1999-2000 to £1.5bn in 2002-2003.

SRA chairman Richard Bowker said there would be another plan in a year's time, which would be the basis of an appeal for more Government funds.