Public foots ?150m Railtrack bill

Taxpayers will have to stump up an extra £150 million to buy off angry Railtrack shareholders when details of how the ruined company will be taken out of administration are published this week.

The Government hopes this will avert any legal action by private shareholders, and has worked closely with Railtrack Group in drafting the plan.

The Treasury has agreed to waive tax of £150m that would have been paid by shareholders as part of the settlement.

Next week, Railtrack Group - the holding company that still owns the track, signals, stations and property - is expected to publish a circular explaining to shareholders the terms of the deal it has struck with the Government's not-for-dividend company, Network Rail.

The circular will contain an indemnity from the Treasury, effectively renouncing its claim to taxation from any gains that shareholders might claim.

Government-sponsored Network Rail is to make an 'early exit payment' of £500m for Railtrack plc, the rump of the old privatised company. At the same time, London and Continental is paying £375m for the Channel Tunnel Rail Link, which Network Rail will pay £80m to operate. In addition Railtrack plc will return up to £100m of property assets and £350m of cash to Railtrack Group. It is on the exit payment that the tax indemnity is placed.

Railtrack shareholders will vote on the proposals at an extraordinary meeting next month. A Railtrack spokeswoman confirmed the indemnity had been offered.

The indemnity could be superseded by measures in the finance Bill that waive tax liabilities for shareholders of companies that subsequently go into liquidation.

Meanwhile there are fears that the present restructuring will not solve the underlying financial crisis facing the railways. Experts fear there is a £6 billion funding gap in the Government's plans.

Senior government advisers have told the Treasury that planned maintenance spending falls short by some £6bn, and that an existing £4bn of public money for enhancements - due to be matched by private funds through special joint ventures - is alarmingly inadequate.

Other experts have warned that train operating companies do not have the financial muscle to raise the private funds necessary.

After it has agreed the £9bn bank loan to Network Rail, the Government will ring-fence track access charges, allowing a further £10bn to be raised.