Way cleared for buyout bids by BR employees: Government acts to head off rebellion on legislation to privatise railways

The Government yesterday acted to head off a rebellion on its rail privatisation legislation with an 11th-hour amendment intended to give preference to BR staff buyouts.

The amendment, made without fanfare as the Railways Bill began its Report stage in the House of Lords, is seen as part of a strategy to persuade Tory sceptics that British Rail's expertise will not be lost to the network through privatisation.

John MacGregor, Secretary of State for Transport, has yet to reveal how he will deal with an earlier Lords' amendment, introduced by Lord Peyton, a former Conservative transport minister, which would allow BR to bid for franchises to run passenger services.

Mr MacGregor has been strongly opposed to BR bidding, insisting this would defeat the purpose of the legislation.

More than a score of Conservative backbenchers are reported to be ready to defy the government whip if Mr MacGregor seeks to overturn the peers when the Bill returns to the Commons at the end of this month.

Introducing the buyouts amendment, the Earl of Caithness, Minister of State for Transport, said the Secretary of State would have a duty to promote the award of franchises to companies in which BR employees providing the service had a significant interest.

'There are already indications that a number of employee teams are giving active consideration to preparing bids for their franchises. The Government wishes to encourage such bids which would broadly be equivalent to management-employee buyouts.'

For Labour, Lord Clinton-Davis questioned whether by placing buyout teams in 'a very advantageous position', the Government might not run foul of EC competition law. Labour would prefer as much BR involvement as possible, but Lord Clinton-Davis said other potential franchisees might take exception to the advantage given to employees.

Specifically writing the promotion of buyouts into the Bill will give ministers and government business managers a further lever as they try to win over potential backbench rebels.

A Department of Transport official said the amendment was intended to emphasise Mr MacGregor's wish to see BR employees involved in running services while freeing them of a national bureaucracy.

Stephen Day, MP for Cheadle, who defied the government whip on the Bill earlier this year, said the amendment did not change his attitude on the Peyton amendment. 'The Government's amendment leaves the rest of the network not being able to bid. BR should be given the right to bid.'

The amendment is a recognition of the inevitable. Ministers know that management buyouts are virtually the only likely source of bids for the franchises. They are even offering management teams nearly pounds 100,000 to help them work up bids.

Interest from the private sector has been limited, with barely a dozen, mainly bus companies, expressing an interest publicly.

With so few firms coming forward, an outside bidder would be unlikely to mount a successful bid without having the involvement of some existing BR managers as part of a buyout team to provide them with the necessary expertise to run services.

The risk for the Government is that this will be the last straw for the reluctant private sector. If management buyouts are to be given priority, no 'pure' private sector bids will be forthcoming.