Angry City snubs Tube cash call

A GOVERNMENT drive to raise £1.5bn of vital funding from the City for the London Underground is being boycotted because investors have lost faith in the Labour administration.

The effective strike, mounted by leading City institutions, threatens to undermine the Government's much-vaunted public private partnership (PPP) initiative and comes as ministers attempt to raise at least £30bn for Britain's rail and Tube lines.

The problem is a direct result of Transport Secretary Stephen Byers's decision to put Railtrack into administration in October.

The £1.5bn cash-raising is supposed to the first phase in a multi-billion pound regeneration exercise for the Tube. Several billion pounds of extra cash is being sought from the private sector in the coming years.

Discussions are taking place now between Government advisers and the City but investors are refusing to play ball. Institutions such as Barclays, Legal & General, M&G and Scottish Widows are saying they cannot put pension fund money into the Tube, following Byers's shoddy treatment of them over Railtrack.

Talks are at a sensitive stage but one investor said: 'The Government has stubbornly refused to provide us with any reassurance over Railtrack and our pension clients are extremely upset. They will certainly not stand for us lending any money on the Tube unless the rail situation is sorted out.'

News of the financing boycott emerged as more than 20 top institutions fired off a letter to Chancellor Gordon Brown suggesting the Railtrack collapse had fundamentally undermined relations between Government and the City.

The letter came from Railtrack shareholders who saw the value of their shares reduced to nothing following the Transport Secretary's administration decision.

Only last week bondholders, who lent Railtrack £1.5bn, sent their own letter to the Government stating categorically that rail funding was under threat in the wake of Byers's move.

All institutions say this is not a battle between the rich City and the rest of the country. 'We are talking about ordinary people's pensions here and we are talking about taxpayers' money,' said Nick Mustoe at Hermes Investment Management, one of the biggest investment houses in Britain.

Institutions say price is not the issue however. They want fair treatment over Railtrack and they also want guarantees that ministers will not follow Byers's lead in the future. 'Railtrack showed it was heads you lose, tails you lose as far as government policy is concerned,' said Jeremy Hosking at Marathon Asset Management.

The Treasury said: 'The Chancellor, like the Prime Minister, fully backs the decision to put Railtrack into administration.'

In breaking Railtrack, Byers broke the covenant