Railtrack is a lesson for Labour in how to deal with the private sector

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Byers offers Railtrack investors £300m of public money

The possibility of a settlement between Railtrack shareholders and the Government must be welcomed, from a pragmatic point of view, as a condition of improving Britain's railways. But achieving clarity is taking so long that it calls into question how the state does business with the private sector.

Getting rid of Railtrack was achieved by mistakes, and by accidents, when it should have been Labour's starting point five years ago. What is worse, Stephen Byers, the Secretary of State for Transport But Probably Not For Much Longer, still seems to have little idea of what should take its place. Except that it is the "Company Limited by Guarantee", so formless it does not have a name, only a legal description, a non-profit-making colloquium of train operating companies, construction companies and passengers. But as for how much money it should have from the taxpayer, how much it should be expected to raise from the capital markets and how its performance will be measured and rewarded or penalised, we are little further on than we were five months ago when Mr Byers pulled the plug on its predecessor.

He was right to do so, but bungled the execution so badly that he turned one of the most unpopular groups in British society – Railtrack shareholders – into the victims of an injustice. If they are now going to receive a little less than the value of their shares when they were suspended, why could they not have been told that at the time? Instead, Mr Byers seemed to be posturing for the "nationalisation without compensation" faction of Labour backbenchers, although the true explanation of his erratic handling of the issue is probably less complimentary to his competence or his ideology.

Clearly, future partnerships between the Government and the private sector cannot be built on the confiscation of assets, and it is bizarre that Mr Byers allowed the notion to gain ground. There was some value in Railtrack when it was wound up, and it must be distributed to shareholders before moving on to the next stage.

Even granting the extent to which Mr Byers is not Secretary of State in his own Department, with the real decisions being taken by Gordon Brown in the Treasury, he has not acquitted himself well. But it is the Treasury's role in all this which poses the most important questions for the future.

Railtrack is not the only example of a public-private project which has gone horribly wrong under Labour. There was the Dome, the Channel Tunnel Rail Link and the Tube. The last may not have gone wrong as such, but, like the overground railway, it has not even got to the starting point for new investment yet. In each case, the Treasury is holding things up, insisting on prudence and yet failing to ensure that the private sector bears the risks matching its potential rewards.

Nor is this only a problem with this Government. The contract for the high-speed link to the Channel Tunnel, which had to be bailed out by Labour with extra billions, was signed under the Conservatives. Railtrack was, of course, designed as the "poll tax on wheels" by the Conservatives. Both the Channel link and the Dome, as last week's public accounts committee report found, depended on optimistic forecasts of public use and in neither case was the private sector forced to bear the cost of getting it wrong.

That is the issue which is delaying the signing of contracts for the Tube, and which is dragging out the design of the new, non-profit-making railway. Meanwhile, morale among Railtrack staff is low, the maintenance backlog is growing again and the passengers suffer. With Mr Byers already, in effect, out of the picture, attention should focus where responsibility lies, at the Treasury.