The decision affects a large number of local rail projects across Britain, not only the Haxby and Strensall stations plan, but comes less than a month after staff in the council's transport planning unit were assured by the SRA that the Rail Passenger Partnership Scheme (RPP) funds were secure from cuts.
Councillor Tracey Simpson-Laing, the council's executive member for transport, expressed her anger at the SRA's u-turn.
She said, "I am very surprised and deeply disappointed by this news which has come only weeks after the SRA assured us that the funding for these types of rail projects was 'ring-fenced'. The SRA's decision seems to have been made regardless of the effect it has on delivering a local high quality integrated transport system."
However, Councillor Simpson-Laing said she remained up-beat about the prospects for expanding rail in York.
She said, "We are not going to let this set-back knock us off course. I have asked officers to look at other sources of funding. Perhaps where other local authorities are underspending on their Local Transport Plans, the government might consider a reallocation of funding to York to pay for this important scheme.
"York has a proven track record in delivering congestion-busting transport projects which is a sound basis for awarding York much-needed cash for its new local rail stations."
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