THE bidding process for London, Tilbury and Southend Rail may have to be re-opened after a ticket fraud inquiry halted its transfer into the private sector, Transport Secretary Sir George Young told MPs yesterday.

Labour stepped up the pressure over a situation which it believes draws attention to the potential problems of rail privatisation.

Labour Transport spokesman Brian Wilson demanded that the LTS company's financial backers should state their position on the matter, while his Front Bench colleague Clare Short urged that the tendering process be re-opened.

LTS Rail should have joined South West Trains and Great Western in running the first privatised services on Sunday morning, but on Saturday the Office of Passenger Rail Franchising said the privatisation was on hold following a ``serious breach'' of ticket revenue arrangements.

The allegations are said to centre on the re-issuing of tickets at a station used by both mainline and Tube trains, depriving London Underground of a proportion of the fare.

Mr Wilson said: ``The question is whether reputable investors want anything to do with the alleged malpractices which go hand in hand with the fragmentation and privatisation of the railways.

``There is no doubt that in the light of what has been exposed the whole franchising process of the LTS line should go back to square one.'' He predicted similar embarrassments for the Government in future if it rushed ahead with the franchising process.

``The truth of the matter is that they are so desperate to privatise, every corner is being cut.''

In the Commons, Sir George answered an emergency question stating there was no question of financial irregularities being tolerated in a modern railway, whether publicly or privately owned. The Government took the issue very seriously.

It made sense for BR to complete its own internal investigations, but he added: ``They have assured me they won't hesitate to call in the British Transport Police if that seems appropriate in the light of their investigations.''

For Labour, Ms Short said that deliberate fraud was ``a terribly serious matter'' for the country, and suggested that the offer to allow the particular management team to run the service be withdrawn.

Earlier, Rail Franchise Director Roger Salmon said he was not contemplating a re-bidding process and would wait for the outcome of the investigation British Rail was conducting into the LTS affair.

A separate investigation has also been launched by the Rail Regulator John Swift who said: ``It is very important that those taking over the stewardship of assets being transferred from the public sector to the private sector are, and are seen to be, acting in the public interest.''