£11bn bail-out for Railtrack successor

Network Rail, the new not-for-profit company being set up to take over from Railtrack, will receive government support worth up to £11bn, the Secretary of State for Transport disclosed yesterday.

Alistair Darling told the Commons the company would be guaranteed £7bn to update the network and pay for cost overruns on major projects such as the west coast mainline. In addition, it will be able to draw on a £4bn contingency fund to cover "extraordinary and unexpected events" such as a repeat of the rail chaos which followed the Hatfield crash.

Details of the support package for Network Rail emerged as the Government agreed a compensation deal worth 245p to 255p a share, a total of about £1.3bn, for Railtrack shareholders.

The £11bn package is three times the amount that Railtrack estimated last year it would need to fill a "black hole" in its finances and fund the renewal of the network. But Mr Darling said that, in reality, Railtrack had been demanding a blank cheque. It wanted an uncapped commitment from the Government to meet whatever its costs amounted to during the next four years, the suspension of the regulatory regime and a guarantee that the taxpayer would underwrite its shareholders.

He said the sums being provided were large by any standards. "But they are necessary, given the task facing Network Rail, and they would be needed by any successor to Railtrack," he said. "There is no escaping the fact that Britain's railways need very large-scale investment."

Under the terms of the agreement, Network Rail will receive £9bn in bridging finance from several commercial banks to buy Railtrack out of administration and assume responsibility for its £7.1bn debts. A further £7bn will be available to fund its medium-term requirements.

Theresa May, the shadow Transport Secretary, accused the Government of going back on its word not to hand a "blank cheque" to Railtrack. She said that administration had cost the taxpayer £1m a day, warning: "What people in the country are worried about is whether their train will be on time tomorrow morning."