Byers hires spin doctors and does U-Turn on Railtrack cash

Stephen Byers yesterday executed a U-Turn by agreeing to give Railtrack shareholders £370m frozen in a HSBC bank account, having previously ruled out any compensation paid for by the taxpayer.

The move came as it emerged that the Secretary of State for Transport has approached Brunswick, one of the best known firms of spin doctors in the City, to advise him in his dispute with the Railtrack board.

Brunswick was until recently public relations adviser to Railtrack and its chairman, Alan Parker, is the son of the former British Rail chairman, Sir Peter Parker.

The £370m in cash is worth 70p a share to Railtrack investors. But Railtrack is demanding 360p a share, or £1.85bn, in compensation from the Government after it put the the network operator into bankruptcy. Steve Marshall, Railtrack's chief executive, indicated that in return the company would drop the threat of legal action against the Government.

Mr Byers last night rejected Railtrack's demand for compensation of £1.85bn, saying: "The Government is committed to spending more than £30bn of public money on the rail network over the next 10 years. But taxpayers' money, which would otherwise be spent on key public services such as schools and hospitals, as well as railways, should not be used to compensate for the poor performance of private sector companies," he added. Mr Marshall replied last night by saying that Railtrack shareholders had a "strong and compelling case", adding: "We are determined to get value for our shareholders." He also indicated that its major shareholders were very likely to begin legal action against the Government. Mr Marshall met a group of big institutional shareholders and said afterwards: "There was considerable anger expressed at the meeting."

Odey Asset Management, which owns shares worth £5m, said it had hired lawyers to sue the Government over the company's collapse and expected to win most of its money back.

Edwin Coe, a London-based law firm that specialises in shareholder claims, is planning a meeting of investors later this month and said that a class-action claim is likely to be filed against the Government, Railtrack, its financial directors and financial advisers. David Greene, a lawyer with the firm, said: "The Government's about-turn in policy is behind this sudden collapse."

The next stage in the campaign to secure more compensation for shareholders will be a meeting to discuss Railtrack's stake in the Channel Tunnel Rail Link concession, which is worth £400m, or a further 75p a share. The right to operate the first phase of the CTRL, between Folkestone and North Kent, lies with Railtrack Group, which is not in administration, unlike Railtrack plc. Mr Marshall wants the Government to enable Railtrack to run the concession or sell it to another operator. Mr Byers said: "We will assist in identifying ways in which money belonging to Railtrack Group might be made available to shareholders, but we will not provide extra funding from the taxpayer to compensate shareholders."

Earlier, going into the meeting, Mr Marshall said Railtrack's 255,000 shareholders included staff, pensioners and people with savings. He went on: "They are not fat cats. We are going to set out what we think is the right thing to be offered to them."

Under the agreement reached yesterday, the £370m held at HSBC will be made available to shareholders when the new not-for-profit company is formed. In return, Railtrack has suspended legal action against HSBC.