Stephen Byers has defended his decision to place Railtrack in administration and warned British bosses "there will be no tolerance of failure" when firms are involved in Labour's flagship public private partnerships.

Speaking to the CBI's Birmingham conference, he defended his move to put Railtrack into administration which had triggered a storm of criticism from opposition parties.

"Railtrack went into administration because it was insolvent. My petition to the High Court was unopposed. My decision on October 5 to refuse further funding to Railtrack was not an easy one. But I firmly believe that Railtrack was not part of the solution for our railways but was a major problem," he said.

The transport secretary told business leaders that a government statement to the Stock Exchange news service in April warned that "the government stands behind the rail system but not 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".

And the government's health warning on Railtrack meant that shareholders will not receive state compensation for the firm's collapse, he said. Investors would get what they were "entitled to" but no government hand-out. "We do not believe... that we should now be putting in more taxpayers' money in order to compensate shareholders."

Attacking Railtrack's stewardship of the railways, Byers slammed the company's failure to invest, the soaring costs of the West Coast line, the absence of an asset condition register and the persistence of speed restrictions months after the Hatfield rail crash.

"We had to say: 'enough is enough'. Let's get to the root cause of this. Let's look at the structure and put it right so that for the extra money we intend to put into the railways secures real value for money and an improved service," he said.

In a tough speech Byers backed the continued involvement of private companies in the delivery of public services but warned: "To be blunt the involvement of the private sector is a means to an end - helping government to deliver better public services more effectively. It therefore follows that when the private sector fails - as Railtrack clearly did - then the government has to act decisively in order to put the public interest first."The Railtrack saga, the minister told British bosses was a salutary lesson for private firms.

"There is an important message here for the private sector. We you want to work with us to deliver improved public services. But there will be no tolerance of failure. And you wouldn't expect it to be any other way," he said.