A £38m plan to expand capacity on the Oxford-Didcot railway route could be derailed in a wrangle over funding.

In its 'initial view' of Network Rail's spending plans for 2009-2014, compared with projected Government funding, the Office of Rail Regulation has listed the scheme as one not needed to meet the key requirements of the Department for Transport.

Among the ideas proposed by Network Rail to cope with forecast growth in the number of passenger and freight trains on the line are an extra platform on part of the car park at the south end of Oxford station for use by services to and from London, to reduce shunting of empty trains around the station and extra loop lines between Oxford and Didcot to keep freight trains out of the way of passenger trains.

According to Modern Railways magazine, sources suggest the ORR is not saying the work would not be useful, but it is not what the Government is asking for, nor is prepared to pay for at this stage.

Bill Emery, the ORR's chief executive, said: "We consider that Network Rail's plans significantly overstate the revenue it will require for 2009-14.

"We believe the company could achieve greater efficiency improvements than assumed in the strategic business plan."

In its business plan, Network Rail said that its routes in the Thames Valley were already so busy that as soon as there was disruption, trying to get trains back on time afterwards was increasingly difficult.

Spokesman Michael Cavanagh said: "Network Rail will be working closely with ORR, Government and the rest of the industry throughout the remainder of this review. It is critical that the efficiency and other assumptions made by ORR as the independent regulator are challenging but realistic."

Lord Berkeley, the chairman of the Rail Freight Group, who lives in Summertown, Oxford, said: "The plans in hand to enhance capacity at Reading and increase clearances at bridges to allow bigger shipping containers on freight trains via Oxford mean our members expect to run more trains.

"We are generally sceptical of both the ORR and Network Rail. They must demonstrate that these trains will be able to run without the proposed enhancements."

He added that he had recently raised the issue of the amount of time that shunting moves by First Great Western High Speed Trains moving into Oxford station from the sidings were blocking the main lines.

FGW told him it had no plans to ask Network Rail to increase the 5mph speed limit over the points north of the station before the Oxford area is resignalled in 2015.