Byers 'scaring off investors' - City

STEPHEN Byers' handling of Railtrack has jeopardised private investment in Labour's transport plans, top City firms have warned. The warning from more than 20 companies will send shockwaves through Whitehall.

Labour's £180bn ten-year transport plan will stand or fall on the beleaguered Transport Secretary's ability to attract huge amounts of private investment.

Under it, Labour aims to spend £63.5bn alone on the railways, with up to £34bn of that coming from the private sector. However, a letter sent to Chancellor Gordon Brown by fund managers warns that the private sector will be wary of taking part in Labour's public-private partnerships (PPP) in future. They say their 'trust' in the Government has been shattered.

The letter accuses Byers of placing Railtrack into administration with 'undue haste' and without appropriate consultation with shareholders. As a result, the fund managers argue that investors are now facing an 'increased political risk' and will require a better return - higher interest rate payments - before they enter into any future deals with the Government. 'This will increase the cost to the taxpayer,' they warn.

The letter also says Byers' actions have shattered the trust between ministers and the business community. 'We believe that many of our colleagues in the private sector will now be wary of entering into (PPPs) and damage has been caused to the trust that previously existed between Government and the City.'

The fund managers warn that Byers' handling of the Railtrack affair could undermine efforts to encourage people to save for the future. 'We believe the Government's actions may now act as a major disincentive to the very people we wished to encourage to save and invest in their company savings schemes.'

The letter comes as the Strategic Rail Authority prepares to ask Byers to explain his claims that the private sector will still contribute £34bn to the railways. The SRA fears there may be an £8bn shortfall in the Government's predictions and wants the Transport Secretary to clarify the position.

Among the 20 companies which have signed the letter are Henderson Global Investors, Merrill Lynch Investment Managers, Investec Asset Management, Hermes Investment Management and UBS Investment Management.

Between them, the 20 control billions of pounds worth of funds and will be central to Labour's bid to attract private investment.