Blair to defuse Cabinet rail row

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THE PRIME MINISTER has asked his Cabinet "enforcer" Jack Cunningham to intervene in a battle over Railtrack between two of his most senior ministers.

Gordon Brown, the Chancellor of the Exchequer, and John Prescott, Deputy Prime Minister, are embroiled in a dispute over Mr Prescott's plans to force the privatised company to invest more in the rail network.

"Tony is worried that this issue could become the first Old Labour-New Labour dispute," said a senior Labour source. "Jack has been called in."

Last month Railtrack provoked anger after it announced pre-tax profits of pounds 428m. The privatised company admitted that it had failed to reduce train delays by its target but had posted record profits of pounds 1.2m a day.

The results did not impress investors, either. Shares have fallen back from pounds 16 in February to pounds 13 after the results, on fears that the regulatory review of the way it charges train companies for access to its 10,270- mile network will cut profits in the medium term.

Railtrack receives over pounds 1bn a year in government subsidies. The money is paid to train operating companies, which pass it on to Railtrack in return for service improvements.

Mr Prescott believes that this scheme, framed by the previous Conservative government, does not give Railtrack a financial incentive to improve its network. He wants to link directly the taxpayer's subsidy to investing in Britain's railway lines and force Railtrack to spend more money on reducing train delays.

The rail regulator, Chris Bolt, has recently told Mr Prescott, the Secretary of State for Environment, Transport and the Regions, that it would be possible to pay the taxpayer's subsidy direct to Railtrack, by- passing the train operating companies altogether.

Mr Prescott wants to frame a new law that would link Railtrack's pounds 1bn taxpayers' subsidy to improvements to the service it provides.

He is drafting a law to give the new Strategic Rail Authority the power to pay part of the government subsidy direct to Railtrack.

But Mr Brown is concerned that Prescott's scheme would hamper the privatised company's ability to borrow funds for investment and damage Labour's pro- business credentials.

Railtrack has complained that government intervention will force its share price down and make it more expensive to raise capital to spend on track improvements.