Labour to back state holding in Railtrack

Labour will commit itself to a state stake in Railtrack, after differences over its post- privatisation future were resolved in favour of a tougher than expected commitment to public ownership.

Although the exact wording of Labour's intention to run a publicly owned and accountable Railtrack has yet to be finalised, the policy - which is expected to be included in next month's privatisation prospectus - was agreed in substance at a meeting of key Labour figures on Wednesday evening.

The wording is expected to make it clear that the public interest in Railtrack will not be restored until resources allow. But the language will leave no doubt over its overall goal and will be formulated in way designed to create considerable uncertainty among would-be investors.

The approval of the Labour leader, Tony Blair, for the policy will be read by some in the Labour Party as a victory for John Prescott, the deputy leader, over Gordon Brown, the shadow Chancellor, who had orginally argued that the public interest in Railtrack should be protected by regulation rather than ownership.

Mr Brown, however, is understood to have given his approval to the new railway policy.

Although party figures strongly deny the debate was polarised, Clare Short, the shadow Transport Secretary was said to have at one time backed Mr Brown, while her deputy, Brian Wilson, the rail spokesman, supported Mr Prescott.

The statement of the new policy will make it clear that Labour is not committed to continue transferring rail subsidy to the rail network through the franchise operators.

Under Government policy the pounds 2bn subsidy for passenger services will be paid to franchise operators who then pay Railtrack access charges for the right to use the network's infrastructure.

By reopening that issue, the party will raise the prospect of subsidising Railtrack directly - at the same time as letting the franchise operators be free of access charges.

Such a switch could also reopen the question of how the regulatory regime would operate.

The prospectus for the pounds 1.5bn flotation of Railtrack will be published next month and party officials believe that the inclusion of the Labour formula could well deter some would- be investors from coming forward.

There has been fierce debate within senior levels of the party over the kind of commitment to make on Railtrack. But Mr Blair is said to have been open-minded while seeking to ensure that there were no unacceptable costs involved.