Labour threatens end to Railtrack 'gravy train'

Labour warned hundreds of thousands of small investors in Railtrack last night that returns on their newly bought shares will fall far short of their expectations if the party wins the next election.

Clare Short, the party's shadow transport spokeswoman, said Labour would force Railtrack to use the proceeds from land sell-offs on improvements to its infrastructure rather than payouts to shareholders.

Ms Shorts' toughest warning yet on the fate of Railtrack shareholders under Labour came as more than 660,000 looked set to reap instant profits of about 15 per cent when trading begins on the stock market today.

The pounds 1.9bn sale of the company that owns the railways' track and signalling network was heavily oversubscribed, sparking criticism from Labour that it had been privatised on the cheap.

"I just hope that small investors have taken note of Labour's proposals for Railtrack," Ms Short said. "We have tried to be absolutely straight and made it clear that Labour will stop the gravy train.

"If land which Railtrack owns is sold it will have to be used first and foremost on real investment and to reduce track access charges in order to promote the greater use of public transport. That will undoubtedly affect the rate of return for investors in future."

SBC Warburg, the Government's adviser in the sell-off, announced yesterday that more than 44 per cent of applicants would receive the amount of shares they applied for, while 97 per cent per cent will receive some shares.

Investors who applied for shares through the UK public offer will pay 190p for the first of two instalments, 10 pence less than applications through the international offer. The total price of each share was set yesterday at 390p for institutions and 380p for private investors, at the top end of expectations in the City.

The eventual number of applications for shares was about a third of the nearly two million who first registered an interest in Railtrack's privatisation, leading Labour to claim that its warnings, in prospectuses sent to all registering investors, had been heeded by many potential applicants.

Ms Short said yesterday: "You can sell anything if you sell it cheaply enough and this is a phenomenally cheap price. Railtrack owns large parcels of land in every single city centre in the land. It is a phenomenal sweetener."

Her colleague Brian Wilson, another Labour shadow transport spokesman, claimed Railtrack was actually worth pounds 6bn.

Ms Short added that although Labour was powerless to prevent the big dividend payouts in year one that had made the share offer so attractive, its controls over Railtrack would curb any future cash handouts.

Sir George Young, the Transport Secretary, said on BBC TV's On The Record: "The taxpayer is not just getting pounds 1.9bn. Railtrack is taking over more than half a billion pounds' worth of debt which will be repaid to the Government, bringing it up to about pounds 2.6bn, which is roughly what the net asset value was the last time there was a balance sheet."

Sir George added that had the sell-off not taken place, the Government would have been faced with infrastructure spending of pounds 1bn a year. Privatisation meant Railtrack would now be freed from the Treasury constraints on the public sector and thus able to get fresh funds from the City.

And he denied the intention was to run the network down. "Far from closing lines, we're actually opening lines.... We've opened, or reopened 220 stations. The last Labour government closed about 600. So I'm in the business of expanding, investing, building, improving - not shrinking and cutting and closing."

The allocation of shares means that 48.3 per cent will go through the UK public offer, with a further 10.2 per cent via the retail tender. SBC Warburg said yesterday that of the 136 million shares applied for through the retail tender, 32.5 million were personal equity plan (PEP) bids. All PEP bids were met in full, with other bidders receiving a further 12 million shares, 1,000 per applicant.

The average number of shares applied for was 657.

The allocation for those who registered with one of the Government's 110 Share Shops will be in full up to 300 shares. This falls to 315 for 400 shares applied for and 330 for 500 shares, eventually tapering off to a maximum of 510 for 2,000 applications. No shares will be distributed to those who applied for more than 2,500. A small minority, mostly among the 13,000 who applied through the public offer but did not register with a Share Shop first, will receive no shares if they applied for more than 600.