Michael Howard: The Railtrack fiasco is far worse than a Whitehall farce

'The events of this week have shed a light on just how this Government goes about its business'

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Pressure grows on Byers over handling of spin and Railtrack

Byers may be forced to renationalise Railtrack as bondholders get tough

Business: Outlook

Leading article: Mr Byers has badly mishandled Railtrack

The Government now appears to be in complete disarray over Railtrack. We have witnessed over the last couple of days the U-turns, briefings, counter-briefings and attempts to shift the blame that arise whenever ministers panic.

But the Railtrack episode should not be written off as another Whitehall farce. The issues at stake go far, far deeper than that. These events have brought into sharp focus the way this Government behaves – and the impact that behaviour has on the lives of millions of people in this country.

The behaviour of the Ministers involved has been, in the words of Railtrack's former chief executive, Steve Marshall, shoddy and unacceptable. They were prepared to negotiate behind the rail regulator's back. They were prepared to pull the rug from under Railtrack's investors, leading directly to its bankruptcy. They were prepared to let down shareholders, including thousands of Railtrack employees and many pensioners, having earlier made assurances about funding. They did not even release the assets of the Railtrack group until threatened with court action.

Those penalised most by the collapse of Railtrack will be those who can afford it least. These include many of the company's 250,000 shareholders, among their number an estimated 90 per cent of its own employees. Some were setting aside part of their salaries in a save-as-you-earn scheme. Others will recently have retired.

Anyone whose pension was invested in Railtrack has also been hit. Of course there will be those who blame such losses on the inherent vagaries of the capitalist system. They will be wrong. It was the Government, not capital markets, who were at fault. Even the RMT rail union expressed its regret that "nationalisation" happened "quite as it did".

There is an even more central issue. As The Independent said on Tuesday, after the Railtrack episode "capital markets are being forced to learn the hard way that it doesn't pay to trust the Government". If investors think that Government cannot be trusted, how can it hope to attract private sector funding and enterprise to our public services?

It is little wonder that the Director General of the CBI has said the Government has to move quickly to retain the confidence of investors. And the director of investment at Legal & General has said that in future investors will be spending more time with their lawyers to study the words in prospectuses. There could hardly be a more damning indictment of the reputation that the Government now has. And if private investors think that a Government is likely to change the rules that govern their investments, then they are also likely to think twice before committing their money to projects of this kind.

The Government's own transport plan envisages that the rail industry will provide £34bn of private investment over a 10-year period. There is an urgent need for ministers to explain where this investment will come from.

At this week's Conservative Party conference, speaker after speaker expressed their anger at the state that the public services in Britain are now in. When patients die from diseases from which they would not die if they lived in France or Germany, when our health service is mocked as "medieval" by the French Health Minister, and when too many of our schoolchildren leave school ill equipped for the world of work, we have every right to be angry.

On this, all political parties seem agreed. They even agree – or, at least, say they agree – that the private sector should play more of a role in improving our public services.

But the Railtrack episode shows once again that Labour will never be able to achieve the right answer – because, when push comes to shove, they instinctively put dogma first every time.

The issue of trust in this Government goes further still. The events of this week have shed light on just how this Government goes about its business.

We have seen a ministerial aide remain in post after suggesting that 11 September was a very good day for burying negative government news. We have seen claims that the Transport Department's communications director was moved to another job after refusing to participate in a campaign intended to discredit the London Transport Commissioner, Bob Kiley.

And we have seen ministers' behaviour over Railtrack. What was the reaction of Stephen Byers after presiding over the collapse of Railtrack, the betrayal of shareholders, and the damage to private sector investment in public services? He is reported to have approached a firm of spin doctors.

Questions raised by this episode are fundamental and far-reaching. They touch directly on how public services can best be provided. This episode can in many ways be seen as a litmus test of the Government's ability to harness the private sector to help achieve its objectives. It is a test that the Government has spectacularly failed.

The writer is the Shadow Chancellor