asked Her Majesty's Government:

What discussions they have had with investment fund managers relating to their investments in Railtrack plc.

My Lords, my right honourable friend the Secretary of State held a meeting with representatives of the Railtrack Shareholders' Action Group and the Institutional Shareholders' Committee on 20th November 2001. A separate meeting with members of the Railtrack Private Shareholders Group also took place on 20th November 2001.

My Lords, I thank my noble friend for that Answer, in view of the wide range of subjects with which he deals. Has he seen the letter in The Times of 6th March written by investment managers? Usually they are highly respected members of the community—some of them are probably middle class, although their investment advice is not always correct. I am not now talking about Railtrack, but about a point that was made in that letter that they believed—not "thought"—that there was a regulation that made sure that downside risk was limited. Does the Government believe that to be true? If it is, can my noble friend tell the House which other privatised companies have their downside risk limited by regulation? If he would care to let me have the names of the companies—I declare an interest—I would be happy to consider investing in them.

Yes, my Lords, I was aware of the letter, published on 6th March in The Times written by the investment fund managers. It referred to a range of matters, including privatised companies with a downside risk regulated. I do not know of any other. I cannot draw the attention of the noble Lord to them. An article in the Financial Times commented on that letter, saying that a number of other people, including Tim Stone, chairman of corporate finance at KPMG, said that the issues raised in that letter had no effect on PFI generally.

My Lords, can the Minister tell the House whether he is aware of any letter of comfort, similar to that given for London Underground in response to the Question posed by the noble Lord, Lord Ezra, for debt or equity that would lead those investment fund managers to consider that the Government would not allow Railtrack to go into administration or liquidation or anything else?

My Lords, I am aware of no such letter. It is worth reminding the House of the first point of the April 2001 statement of principle between the Government and Railtrack, which clearly stated:

"The Government stands behind the rail system but not behind individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face".

That statement was made in April 2001.

My Lords, I declare an interest as an investment fund manager. Does the Minister agree that, due to Railtrack receivership, the relationship of trust between investment fund managers and the Government has broken down, so making it more difficult for them to support, with confidence, future railway expenditure without firm government guarantees?

No, my Lords, I do not believe that the relationship of trust has broken down. I shall quote what David Metter, the chief executive of Innisfree, one of the largest PFI equity investors, said:

"We have absolutely no concern that the Government will not honour its obligations under PPPs and PFIs".

My Lords, does the Minister agree that the reality is that no major passenger railway system in the world has ever broken even, let alone made a true profit; that every government have found themselves subsidising our passenger railway system; and that any private bidder will assume that on the basis of all history the Government will pick up the tab because it has no realistic alternative? It was a mistake to privatise British Rail, but having done so would it not be sensible to recognise the reality?

My Lords, I agree with the basic proposition. I cannot say that every single passenger rail system, but the vast majority, require a public subsidy. That has always been known. It was known in relation to Railtrack, but that is not the same as saying that the Government were providing a guarantee that they would always provide to that particular vehicle whatever it asked for, irrespective of the quality of its management and irrespective of the quality of its asset management.

My Lords, can my noble friend tell the House what has happened to free-market capitalism if fund managers managing millions of pounds are under the impression that there are downside risk-free assets in which one can invest? Adam Smith and Karl Marx would turn in their graves.

My Lords, to answer what has happened to free-market capitalism would require a wide-ranging reply. The noble Lord, Lord Northbrook, is probably the man to ask.

My Lords, can the Minister confirm that, as a result of the errors of omission or commission that the Government may or may not have made in the case of Railtrack, we the taxpayers will have to pay an extra £1 billion in interest payments to banks to compensate them for the perceived decline in the Government's credit rating?

My Lords, I do not accept that proposition. The party that my noble friend represents may ask whether it was wise to privatise Railtrack in the way that it did in 1994.