THE £500M Merseytram scheme was scrapped by the government today.
After months of agonising negotiations, transport secretary Alastair Darling refused to provide vital £170m Treasury funding.
The decision means there is no hope of rescuing the project, which has already cost at least £30m of taxpayers' money.
Mr Darling and his trains minister, Derek Twigg, blamed Liverpool and Knowsley councils for the collapse., saying they should have given unconditional guarantees to underwrite any future spending overruns.
But the councils would only promise an extra £24m - and today insisted agreeing the government's demand for an open ended deal would have been illegal.
Former city council leader Mike Storey today said he was "stunned" by the decision.
"What really sticks in my throat is that it has been quite clear that the government had no intention of going ahead with this.
"They put every conceivable hurdle in the way. Millions of pounds have been thrown down the drain because of the way they have acted."
He fears the £170m will go into the London Olympics pot - the Minister says it will stay on the table if any alternative Merseyside transport schemes are brought forward.
Merseyside MPs claimed the Line One link from Kirkby to the city centre is vital for its regeneration.
A spokesman for Merseytravel said: "We will have to consider the statement with our partners before making further comment."
Knowsley North MP George Howarth, a key Parliamentary player in the negotiations, said: "It is bitterly disappointing particularly given the efforts that many of us, including those involved in Merseytravel, Knowsley Council and the politicians in Liverpool, have put into it.
"The government was given firm guarantees which they felt unable to accept about how overruns were to be funded."
"Although the politicians in Liverpool supported these proposals in the latter stage, their own officers have bent over backwards to sabotage the scheme and unfortunately they have succeeded."
Riverside MP Louise Ellman said: "It is a terrible shame and I am extremely disappointed. So much effort has been put into this but the government has gone cool on light transport.
"If they were going to say no they should have done so earlier and ended the damaging uncertainty."
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