Prescott slaps an extra tax on rail tycoons

JOHN PRESCOTT, the Deputy Prime Minister, is planning "profit- sharing" deals with private train companies to claw back money for the public purse.

Despite denials of a "windfall tax" by both Downing Street and Mr Prescott, Whitehall sources made it clear that if train firms come to ask for longer franchise lengths, or propose a takeover, then ministers will ask for a share of any future profits.

Mr Prescott is extremely concerned about gains made on the back of railway privatisation. This week saw seven directors at Great Western - one of the first train companies to fall into private hands - make more than pounds 15m in profits.

Earlier this week, the National Audit Office also attacked the speed of the sell-off of the nation's rolling stock companies - which netted the public purse pounds 1.8bn but were then sold on for pounds 2.6bn plus. One railway manager alone made pounds 33m on a deal with Stagecoach, the bus giant.

However, sources close to Mr Prescott said that since no action could be made retrospectively, this measure was not a "windfall tax". His junior cabinet colleague Gavin Strang found himself at the centre of a political storm when he floated the idea on a BBC programme.

"What is likely is, if a train company seeks, say, an extension to its licence, we will be asking what benefits are there for the passenger and the public purse," a source said.

Mr Prescott himself referred obliquely to the plans in a radio interview. However, he said he "wouldn't be so sure" that similar deals would now follow, to beat new rules. He pointed to the profit-sharing arrangement he had negotiated with regard to the Channel Tunnel. "Clearly I will be considering what powers I have to get the taxpayers' share in these matters, but we don't think the windfall tax is the way of doing it."

New powers to stop profiteering were first proposed by the former franchising director, when starting to sell off British Rail. He asked ministers for a claw-back option to retrieve excess profits - but Tory ministers were concerned that this would hamper BR's sell-off and "knocked the suggestion back".

It is also understood that the performance of John O'Brien, the present franchising director, has been called into question. Mr Prescott believes that Mr O'Brien, whose contract expires later this year, could have squeezed more from the pounds 140m Great Western deal.

The ability to claw back profits is likely to feature in the forthcoming White Paper on transport. Mr Prescott added that ways to make the railway system more accountable were being considered.

"I'm obviously looking at these matters as to exactly what my powers are in these areas ... And the Franchise Director and the Regulator have made clear to me they don't have adequate powers. That's what I'm addressing myself to in the White Paper."

However, he stressed: "We're not introducing another windfall tax. There's no doubt about that. We want to see how we get a greater accountability into this railway system to stop what I believe might be a market practice [that is] subsidised by ... the taxpayer.

"What I made clear to the Franchise Director was that I, like most other people, feel this privatised railway system turns people into millionaires at the expense of the passenger and the taxpayer. That's totally unacceptable."

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