£300m Railtrack U-turn

Stephen Byers today faced increased doubt over his political future as a £300million bail-out of Railtrack using taxpayers' money heaped more embarrassment on the Government.

The spectacular U-turn by Mr Byers who had previously repeated assurances there would be no bailout of the company he forced into administration last October, redoubled the pressure from the Tories and other opponents for him to go.

They were clamouring for Mr Blair to get rid of the troubled Transport Secretary no later than a reshuffle in the summer. But Labour voices were saying that Mr Byers - barring yet another disaster - could still hang on, either as Transport Secretary or in some other Cabinet post.

In February, Mr Byers said: "My position is clear on this. There will be no more taxpayers' money available. For our Government it is essential that public services come first and not the interests of Railtrack shareholders."

Theresa May, the shadow transport secretary, renewed her attack on Mr Byers saying he had "bungled"-yet again. She said by providing taxpayer money the Government was "shutting out" other bidders which could have come up with a better deal.

The government move, however, also pre-empted a legal challenge by a shareholders action group. Many industry and legal experts believed such a challenge could prove successful meaning the Government, and Mr Byers, being dragged through the courts.

Government sources were today trying to play down the use of taxpayers money and insisting it was not a U-turn. Instead they were claiming the move would save taxpayer money because it would reduce the time Railtrack spent in administration at a cost of £1 million a day.

One government source was quoted as saying: "We have been very clear that there is no compensation for shareholders. There is no government bail-out. No one is going to run the railway without money from the Government."

However, with railways in disarray - last week a report revealed a huge deterioration in services across the national network - Tony Blair and Gordon Brown were forced to step in and sort out the mess.

Under the deal, some 250,000 shareholders will be offered £2.50 a share. The action group is demanding £3.60 a share, but investors are expected to accept, albeit reluctantly.

For many, including 10,000 Railtrack employees who received bonus payments in shares - there was no cash alternative - it will mean some salvaging of personal fortunes which appeared lost.

The Prime Minister is reported to have been "aghast" when the losses to individual shareholders resulting from Mr Byers's action were revealed. The new offer will be made today to Railtrack Group by the company limited by guarantee (CLG,) the non-profit organisation that Railtrack will become.

A Railtrack Group spokeswoman said today: "We have not had a formal offer but if the speculation is true we see this as a possible move towards getting fair value for shareholders." A spokesman for the Railtrack shareholders action group, which represents City institutions, said the offer looked "very interesting".

The £300million will come from the £65billion that Mr Byers has already allotted to the railways through his 10-year plan.

Meanwhile, however, other bids for a possible takeover of Railtrack are still being discussed. These include talks with a German bank Westlb. Another finance house, the US company Babcock & Brown, is also thought to have held negotiations with the administrators about a possible offer.

Mr Blair yesterday defended the Transport Secretary in the way he had dealt with the Railtrack situation.

The Prime Minister said: "People make a lot of criticising him but they totally fail to understand he inherited a situation where, after Hatfield, Railtrack had become effectively insolvent and he had to act on it. What he should be judged by is his delivery."

Railtrack, however, has denied it was insolvent when forced into administration.

Opinion: Byers makes a U-turn
Comment: Bring me the head of Byers
How will the new company work?