ONE of Scotland's biggest transport projects is no longer economically viable due to the failure of a local property boom and steep drop in projected passenger numbers, the Government has been warned.

The controversial £350 million Borders Railway has suffered from the failure of plans to build hundreds of houses along the route and a fall in the predicted number of people making return trips from 976,000 to 647,136, according to a report for Transport Scotland.

Details have emerged in a final business case presented by consultants Ernst & Young before work starts on reinstating the line between Edinburgh and Tweedbank for the first time since 1969.

The firm said the pure economic spin-off would amount to only half of the return on the current estimated outlay of £350m. The cost of the line has already risen from about £300m.

Venture capitals and risk assessor Peter Smail said of the plunge in the cost-benefit ratio: "There is no rail project I have ever heard of in the rest of the UK where anything like this ratio has been accepted."

Mr Smail, who is based in the Borders, added: "There will be very heavy early losses and this line is clearly not viable. There are many better rail projects we should be supporting, and this one should be scrapped."

Transport Scotland insisted it remained on course to generate benefits of up to 30% greater than overall costs, including the creation of up to 400 jobs during building work, and said the route would give those living in the Borders and Midlothian greater access to jobs in the capital with higher wages.

A spokesman said: "We are delivering a railway for the people of the Borders for the first time in more than 40 years. This will provide benefits to the local economy, the jobs market, housing and inward investment opportunities.

"When we include accessibility benefits to the residents of Midlothian and the Borders, which was one of the main objectives of the scheme, the benefit-cost ratio of the scheme is up to 1.3, meaning it will generate benefits up to 30% greater than overall costs."

When reinstating the Waverley Line from Edinburgh to Galashiels was first costed at £155m, it was estimated the project would generate economic benefits that well outweighed the investment.

The project has previously faced comparisons with the Edinburgh Trams project, which soared in cost by millions of pounds and had its route truncated.

Labour's transport spokesman Richard Baker said: "SNP ministers' leadership of this project has been a total shambles.

"They couldn't find a private backer, it has been heavily delayed, and now we learn in the intervening period the business case has been affected."

Graeme Bell, the Borders area chairman of the Federation of Small Businesses, said too little attention had been paid in the report to the railway benefiting tourism or attracting new residents to the Borders.

He added: "That's a real deficiency in the report, because there is more benefit in reversing this flow to Edinburgh."

Nicholas Watson, former councillor and leader of the Borders Party, said: "I love trains but this scheme is a dud. It is slow, only serves a fraction of Borders residents, can't carry freight and is a desperate waste of public money.

"Why should taxpayers across Scotland pay for a colossally wasteful project which the great majority of Borderers don't even want?"