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Several hon. Members rose—

Mr. Darling: I am overwhelmed. I shall start by giving way to my hon. Friend the Member for Rhondda (Chris Bryant).

Chris Bryant: Is not the truth of the matter that the entire privatisation was built on sand, and that the only question is whether it was sinking sand or builders sand? One of the things wholly lacking from the debate so far, which most people in the country would find extraordinary, is the conduct of previous Governments in setting up the privatisation.

Mr. Darling: I have consciously concentrated my remarks on the conduct of the Government against what was happening with Railtrack in 2001. Many other criticisms of privatisation could be made, but the central point of the Opposition's argument today is that Ministers acted improperly in the face of what was happening to Railtrack. Given what was happening to Railtrack, the financial state that it was in and the poor state of its management, it would have been extraordinary if the Government of the day—whatever Government—had not taken appropriate action to look after the public interest.

Mr. Kenneth Clarke: We quite accept that the company was in a lamentable state, and that any
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Government had a duty to consider restructuring it to make the privatisation—the present Government always agreed with us on a privatised railway—work more successfully. The question at stake is: what was the position and interests of the shareholders, particularly the small shareholders? Was the company totally insolvent? That could be decided only by the independent regulator, because he determined the revenues of the company and whether it was entitled to more financial support. It was when the Government threatened to legislate to stop him doing anything that the company was made insolvent by the Government. That is what damaged the interests of the grannies, the railwaymen and the shareholders, whose interests the Government overlooked.

Mr. Darling: That argument depends on the Government taking the view that not only should there be a review, but that, as a consequence of what it says, the regulator should tell the Government to produce a lot more taxpayers' money to keep the company afloat. The regulator does not have its own supply of money. The only place from which money can come is the Government. That argument is absolute nonsense.

The right hon. and learned Gentleman has inadvertently taken me to my next point, which concerns shareholders. The shareholders have every reason to be angry—but with the then directors of Railtrack. As I have said—

Several hon. Members rose—

Mr. Darling: I will give way to the hon. Member for Windsor (Adam Afriyie), but I want to make some progress first.

Railtrack wrote to the Department in March 2001, saying that it had financial difficulties. At paragraph 38 of the judgment, the judge says that Mr. J.W. Smith, who wrote that letter, stressed the group's need to


Of course that was going to cause concern, especially considering the content of the letter.

Two things in the letter interest me. First, Smith says that if the Government agree to bring forward £1.45 billion of deferred income, it will leave room for what he describes as "hope value": what an indictment of the directors that they were reduced to hoping that hope value would come into the company.

Secondly, a chart summarising the shareholder value analysis is attached to the letter, and Smith goes on to say:

too right he did. The analysis showed that although shares were trading at £8 a share, the company thought that they were worth 60p. If I were a shareholder in the company and found out that the directors knew that
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the shares were worth a fraction of what they were trading at, I would wonder why they did not issue a trading statement. Surely, they were misleading people, and the market, by allowing people to buy and sell shares at £8 a share when the company thought that they were worth a mere 60p.

Mr. Quentin Davies rose—

Mr. Darling: I shall give way in a moment. That is, perhaps, indicative of the directors' attitude to their shareholders. They thought that no matter what they had done, or what they did in the future, all that they would have to do would be to come cap in hand to the taxpayer and say, "Bail us out." In fact, the company had serious problems. This is not only about what was said internally. ABN Amro—the judge also mentions this—valued the shares at about 58p. Surely the alarm bells should have been ringing throughout the company, which was in deep financial trouble.

Mr. Davies : I do not think that any Conservative Member disagrees with the right hon. Gentleman's criticism of Railtrack's management, but he misses the point altogether. No one suggests that there was no problem, or that Railtrack was a brilliantly successful company. The question is: having decided to take action—in the right or wrong direction; it does not matter—did the Government proceed in a straightforward and fair fashion, or in an underhand, cynical way that showed a cynical disregard for the interests of small shareholders? That is why the quotation from Shriti Vadera is so important. Does not that reflect all too well the new Labour values that permeate the Government, including the Treasury?

Mr. Darling: The Government did act appropriately. My point is that the directors knew that the shares were worth a fraction of what they were trading at, because they knew that the company faced deep-seated problems. I mentioned the valuation of the shares earlier. I am also bound to draw the House's attention to the fact that the company wrote to all its shareholders in April 2001 drawing attention to its agreement with the Government, which states:

That was sent to every Railtrack shareholder.

Mr. Henry Bellingham (North-West Norfolk) (Con) rose—

Mr. Darling: I want to make some progress, then I will give way.

It is clear to me that not only did the company know that it had substantial problems but that its shareholders knew that the Government's commitment was behind the rail system but not behind any particular private company. I am glad that in the face of the facts, which we were not going to get from the hon. Member for Rutland and Melton, it is now common ground that this company was in a far from healthy financial state. Paragraph 64 describes the note that Mr. John Smith of Railtrack prepared for the incoming chairman,
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Mr. Robinson. He said that

west coast main line—

So it is perfectly obvious that the company and its directors knew that the company had deep financial problems. I repeat that for any Government to have ignored that, and for any Government not to have put in place contingency plans, would have been absolutely extraordinary. Without wishing to labour the point—

Several hon. Members rose—

Mr. Darling: I will of course take interventions, just as the hon. Member for Rutland and Melton did.

Let me repeat the point. The then chief executive of Railtrack, when he wrote to the regulator, said:

This company had major financial problems.

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