Taxpayers could face £10bn Railtrack bill

IT IS common knowledge that the administration of Railtrack is costing the Government £1m a day. The figure is guaranteed to cause outrage but it pales virtually into insignificance compared with the total amount this company is costing the taxpayer.

Administrators Ernst & Young have already spent more than £1.2bn in two months, implying a daily figure of around £17m. The accountancy firm has calculated it will need £3.5bn to the end of March, which works out at more than £20m a day.

Some of that would have come from the State, even when Railtrack was in private ownership, via the Government subsidies that the group relied upon to keep going. There is no doubt, however, that Railtrack's current status is proving more expensive to the taxpayer than its previous incarnation.

Railtrack bondholders, who are owed around £1.5bn, have been attempting to calculate the cost of Transport Secretary Stephen Byers' decision to put the company into administration. They believe the move will end up costing taxpayers between £5bn and £10bn. The extent of the range underlines how hazy Byers' plans remain, even though Railtrack has been in administration for almost three months. But even the low end of the range is an unpleasantly large sum of money.

The extra costs filter through in two ways. First, the numerous advisers that the Government is having to pay to oversee Railtrack and to work on ways to take the company into the future. Second, and more importantly, the effect on cost control of knowing that the business is now effectively in State ownership.

Managers who know they have ultimately to report to private shareholders are under pressure to be disciplined. Managers who know that the Government is their paymaster tend to relax the purse strings. This has the potential to be particularly problematic in Railtrack's case, since so much of its work is subcontracted to third parties. These firms will be well aware that the Government is paying their bills and it would be far from surprising if their expenses rose in consequence.

Stephen Byers has repeatedly justified his expropriation of Railtrack by saying he could not stand by and allow the company to soak up any more taxpayers' money. To date, his decision has only increased the taxpayers' bill. Railtrack needs to be taken out of administration and a new structure created for the company as soon as possible if Byers is to have any hope of salvaging his reputation.

The problem is that details of Newtrack remain as elusive as they were on 7 October, when the Transport Secretary made his administration move.

Calculated risk

AT THE time of the 1997 Asian crisis, one-third of the world's savings were invested in the US. Now America attracts around two thirds of the world's surplus cash.

The implication is clear. Investors are increasingly mistrustful of emerging markets and increasingly inclined to put their faith in the dollar. They believe the US Federal Reserve is more likely to make the right decisions than any other central bank, suggesting that even if conditions are bad in the States, they will be worse elsewhere.

If institutions were of this mindset after 1997, Argentina's decision to default on $155bn (£91bn) of public debt will merely deepen their conservatism. The only good news for emerging market economies is that investors are differentiating more between countries, even if they are putting proportionately less money their way.

According to economic guru Gerard Lyons of Standard Chartered, next year is the time for investors to be even more calculating. Countries with sound strategies and strong domestic growth stand to prosper while those with a heavy reliance on external demand and ill-thought-out economic policies will be particularly vulnerable.

French lesson

THE latest unemployment numbers from France provide an unsettling insight into the dangers of protectionism. It is notoriously difficult to cut staff in France yet 9% of its employable citizens are out of work. Britain is well-known as one of the countries in Europe where it is easiest to shed staff yet our jobless rate is just 3.2%.

Businesses like flexibility and France does not offer it. Small wonder that companies and their representatives are resisting calls for British labour laws to become more like those on the other side of the Channel. Today's figures add grist to their mill.

Overseas companies are already having to weigh up whether to invest in Britain, given that we are outside the euro. To date, the flexibility of our markets has outweighed the downside of having a currency that is different from the rest of Europe's. If however, we become burdened with the kind of restrictive practices that prevail on the Continent, the appeal of inward investment in Britain will soon pall.

Unemployment has already begun to rise, reflecting the more challenging economic environment. It needs no encouragement from outmoded labour laws.