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Rail rhetoric overshadows new Labour partnerships

Much of the Opposition's industrial policy could fit into a Heseltine white paper - but suspicions remain, writes Peter Rodgers
The Labour Party appeared this week to be facing two ways at once in its relationship with business. Tony Blair made what at first sight appeared to be a promise to renationalise the railways and in almost the same breath announced a deal with BT that was billed as a new initiative in public and private sector partnership.

The former sounded like a return to the old Labour ways, and was made under pressure from unions; the latter was a classic piece of modern Blairism, discarding anti-business rhetoric to do a deal with a private company that would not be out of place among the Conservatives.

In fact neither announcement was quite as dramatic a departure as it appeared. Labour spokesmen have spent much of the last year ducking direct questions about whether they would buy back Railtrack - worth at least pounds 2.5bn - after the Tories privatise it. After Mr Blair's speech, they have still to give a straight answer.

Mr Blair's statement that "there will be a publicly owned and publicly accountable railway system under a Labour government" was qualified by a promise not to write blank cheques, which in itself left considerable doubt over whether Labour would attempt to buy it back in its first term of office.

Given the scale of spending that would be involved, the remark was more likely to have been aimed at wrecking the sale, to ensure the problem would not arise in the first place, which has been a consistent tactic of Labour's front bench. City advisers believe it could just as easily result in Railtrack going for a knockdown price.

And what exactly does Mr Blair mean by a railway system? Railtrack owns the rails, but from the point of view of the passengers, the most visible part of the railways will be the train operating companies, which are in the process of being franchised out to the private sector.

Since those franchises are generally of seven years, a Labour government thinking in terms of two full terms could renationalise the system without cost by simply allowing the franchises to expire. In any case, half the franchises may still be in the public sector by the election. In contrast, the rolling stock leasing companies - the roscos - may be sold by Christmas, for up to pounds 1.8bn. New Labour would be unlikely to want to take them back into public ownership. The Roscos fit nicely with another strand of Labour thinking, which is to develop financial partnerships with the private sector.

After all, Labour has claimed credit for the ideas that form the basis of Kenneth Clarke's private finance initiative. Gordon Brown, shadow chancellor, has been fiercely critical of the PFI, not because of the principle but because the Treasury has strangled it in red tape and failed to fulfill the original purpose - which was to introduce private finance as an addition to government spending, rather than a replacement. Indeed, Mr Brown has floated the idea of beefing up the PFI by offering government insurance against some of the potential risks, such as changes in regulation.

Against that background, industrialists following Labour thinking over the last year will find little to astonish them in the deal with BT announced by Tony Blair. It is the Tory government that has just extracted pounds 300m towards the cost of the Jubilee Line from the new owners of London's Canary Wharf. The thinking is not dissimilar. Mr Blair's plan is to free BT to sell entertainment down its wires in return for investing in communications links to hospitals, schools, colleges and libraries. With the cost to BT likely to be modest, Mr Blair may end up being criticised for giving away rather a lot for the money.

Partnerships with industry have become the key theme of Labour's policy, as it finally buries direct intervention. Gone are last year's ideas such as a state-owned small business bank. A surprising amount of what is left of Labour industrial policy could fit easily into Michael Heseltine's competitiveness white papers.

Employers dislike the minimum wage intensely and are fiercely critical of windfall taxes on the utilities - though the sting has been drawn from that by the way Tory backbenchers have promoted the idea as well. The CBI's opposition to Labour's promises to abandon the opt out from the European social chapter are based not so much on the setting up of works councils but on what Adair Turner, the CBI director general, calls the "blank cheque" the chapter gives for future regulation of the labour market.

As for Labour's wide-ranging plans to reform utility regulation and introduce a new competition authority, little of this is radical in the sense of being outside the debate among experts about how to manage such things. And at the macro-economic level, business has been been reassured by Mr Blair's commitment to continuing with a tough inflation target.

As Mr Turner said recently, nobody is disputing the value to business of the basic shift in Labour policy. The real issue for some business people remains a suspicion about whether Mr Blair can deliver it in power - a suspicion which the return to rhetoric about renationalisation could reinforce.