Ministers fear Blair 'fighting on too many fronts' after backbenchers attack post and defence cuts

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The Government came under fire from Labour MPs yesterday over big job losses in the postal service and naval dockyards and over a U-turn that handed £300m to Railtrack shareholders.

As ministers expressed concern privately that Tony Blair was "fighting on too many fronts", Labour backbenchers attacked Consignia's decision to axe 15,000 jobs and the Ministry of Defence's announcement that 750 jobs would be lost in dockyards in Portsmouth, Devonport and on the Clyde and 3,000 workers transferred to private companies.

Labour MPs were also furious at the about-face by Stephen Byers, the Transport Secretary, who was accused of "breaking his word" after his repeated promises he would not use taxpayers' money to bail out Railtrack shareholders.

There was also anger that public money from the Strategic Rail Authority would be used as a loan if the new organisation taking over the bankrupt rail network business fails to honour £9bn worth of debts.

But Downing Street backed Mr Byers, who told MPs the £300m would be paid only if it ensured Railtrack an "early exit" from administration by July. He insisted the package would be "self-financing" because it would bring quicker efficiency savings and reduce performance penalties. "We are not compensating shareholders; we are acting to put the interests of the travelling public first," he said.

But Labour MPs, who warmly welcomed the decision to put Railtrack into adminstration last October, accused the Government of pandering to the City after its hostile reaction to the move. David Taylor, MP for North West Leicestershire, told Mr Byers his statement was "a disgrace" and that the Government's "cosy relationship with the City seems to involve a risk-free zone on transport projects".

Theresa May, the Tories' shadow Transport Secretary, accused Mr Byers of making a "180-degree U-turn" in an attempt to "save his face" and head off legal action by Railtrack shareholders that would have forced him to explain under oath why he wound the firm up.

The growing unease on the Labour backbenches was also illustrated when Patricia Hewitt, the Trade and Industry Secretary, defended Consignia's decision to restructure its loss-making Parcelforce subsidiary and revamp the way post is transported. She blamed the last Conservative Government for allowing the postal service to "stagnate".

But John Cryer, Labour MP for Hornchurch, warned that the job losses "will hit some of the poorest and most vulnerable communities in Britain."

John Whittingdale, the shadow Trade Secretary, said: "The restructuring and job losses have been made far worse by the Government's abdication of responsibility and its failure to act before now."

The Communication Workers Union, the main postal workers' union, threatened industrial action and Jack Dromey, national organiser of the Transport and General Workers' Union, said the dockyard workers felt "betrayed".

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