Byers offers Railtrack investors £300m of public money

Shareholders in Railtrack welcomed news yesterday that Stephen Byers will give them £300m of taxpayers' money, but it is understood that they are likely to ask for more.

Funds from the Exchequer will form part of a £1.3bn package to be paid to investors in the bankrupt rail infrastructure company which the Transport Secretary has placed under administration.

Under the plan, it is expected that shareholders will receive 250p a share, compared with the 280p they were originally demanding – the price at which shares were suspended in October. A spokesman for the Railtrack Shareholders Action Group said: "It certainly looks very interesting if it's true and we will encourage the company tomorrow to pursue this."

It is understood that there has been no consensus within the investors' group about what might be an acceptable figure. A source said some shareholders would see the offer as merely an "opening bid" and would be looking to persuade the Government to pay more.

Mr Byers has consistently denied there was any prospect of largesse from the Government – an attitude which won him unexpected plaudits from "Old Labour" MPs. News of the U-turn will anger Labour backbenchers who had commended his refusal to bail out shareholders.

The announcement of the grant is likely to be made today by the Company Limited by Guarantee (CLG) set up to run Railtrack, rather than the Government. Ministers will claim they have not changed their views on compensation.

David James, a businessman who had been formulating an alternative bid for Railtrack along with City banks, said his proposals would not have required a £300m handout from taxpayers.

At a meeting this week, he will ask government representatives if they are still prepared to countenance altern- ative bids for the rail operator or if they are determined to press ahead with the one from the CLG.

The government initiative is an attempt to placate the private sector, which has become increasingly sceptical about the benefits of investment in public services. It could also mean that the legal action threatened by Railtrack Group on behalf of investors will be dropped and that the company will emerge from administration more quickly. Legal papers were due to be lodged on 4 April.

Sources at Railtrack said no immediate decision would be made to abandon litigation because there was no offer in writing and unacceptable "strings" may be attached to the grant.

On top of the £300m grant from the Government, the CLG will borrow £200m to give to shareholders. It is thought that the company has assets worth £800m, including the Channel Tunnel Rail Link, property and cash. That makes a total of £1.3bn to be distributed among Railtrack's investors.

A spokeswoman for the Department of Transport, Local Government and the Regions said the £300m of taxpayers' money which will end up in shareholders' wallets was not "compensation".

She said ministers had always agreed that shareholders should get the value in the company to which they were entitled.

Taxpayers would benefit, she added, because it was costing the Exchequer £1m a day to keep Railtrack in administration and the pack- age would allow it to emerge earlier.

However Theresa May, the shadow Secretary of State for Transport, said: "It's quite clear that the taxpayer is going to be paying for this.

"There may be some weasel way in which they route it through somebody else and into the companies concerned, but I think what lies behind this is clearly taxpayers' money."