The transport secretary has defended his decision to place Railtrack in administration and to pay out £300 million to the collapsed company's shareholders.

Stephen Byers faced down Commons critics in a fresh fight over the future of Britain's crumbling rail network, claiming the government's actions were "not only appropriate but absolutely essential".

"Railtrack was at the heart of a failed and flawed privatisation carried out by the Tories," he said. "The government has always said that what we need is a successor to Railtrack that is focused on the public interest and the safety of passengers."

Praising the progress Railtrack had made, under new management, Byers argued that administration had to be ended "as soon as possible" to hasten improvements to the rail network.

The £300 million government grant for the not-for-profit Network Rail would bring benefits for both taxpayers and rail users and could see Railtrack leave administration by this summer.

Maintaining that "the government has always said that Railtrack shareholders should get the value in the company to which they are entitled, but that there would be no additional taxpayers' money to compensate the shareholders", Byers told MPs that the deal set out by the government's preferred not-for-profit company would be "self-financing".

"There is a value to the government, the taxpayer and rail users in an earlier exit from administration and Network Rail's bid reflects this approach. Network Rail say their proposal could, if accepted by the shareholders, could take Railtrack plc out of administration as early as the end of July this year.''

"A grant of £300 million will be made available to reflect the benefits of an early end to administration. But I must inform the house that if an early exit is not achieved then this money will not be available," he said.

With Conservative attacks focusing again on what Byers said and the meaning of his words when he said them, Theresa May accused Byers of making a "180 degree turnaround".

Quoting his words in last October's Hansard, "the government are not here to fund the shareholders of private companies", and in a newspaper interview, "I can say for certain there will be no taxpayers money for shareholders", the shadow transport secretary attacked "weasel words".

"Passengers are paying the price of the secretary of state's incompetence," she said.

There was "only one early exit that will benefit the railways and that's of the secretary of state", argued May, alleging that Byers' "indecent haste" to find a deal for Railtrack was motivated by his desire to avoid legal action and a requirement to justify himself "under oath".

"I wonder if your indecent haste to conclude this deal might have anything to do with your desire to avoid legal action from Railtrack shareholders. That would have required you to explain under oath why you sought the court order to wind up Railtrack when funds from the rail regulator were available to keep it afloat £300 million of taxpayers' money to save your face," she said.

"Given his repeated assurances inside and outside this House that this government would not use taxpayers' money to compensate shareholders, why has he broken his word yet again?''

Replying to Tory jeers and calls of "Resign!, resign!" that "I will answer in my own way", Byers asserted that Railtrack had been part of the rail problem, not part of the solution and that the Network Rail deal would not see cash taken away from other transport projects.

He also pledged that it would be up to Railtrack's administrators to consider new bids that did involve public money.

Gwyneth Dunwoody, chairman of the Commons transport select committee asked the tranpsort secretary to "clarify" his attitude towards finance for transport.

"Can I finally ask you to make it clear that in future there will either be money from government infrastructure projects or there will be wholly private deals but there will be far less of these absolute monstrosities of total confusion which leave the taxpayer with the ultimate burden but not with the advantages?'," demanded the veteran MP for Crewe and Nantwich.

Insisting that there was a "legitimate role'' for private finance in major public sector contracts, Byers vowed that none of the £300 million deal would be drawn from the £181 billion ste aside for the government's 10-year transport plan.

The Liberal Democrat transport backed the principle of a not-for-profit public interest company to replace Railtrack but accused the government of "badly letting down'' taxpayers to refund City fundholders.

"However you seek to wrap up the £300 million that's exactly whatit is," siad Lib Dem transport spokesman Don Foster.

He also queried whether Network Rail had been given privileged access to information that was not been available to other potential bidders, to which Byers replied that Network Rail had brought forward a "robust business'' plan and repeated that the government believed a company limited by guarantee would be a "good successive body" for the railways.

Downing Street on the defensive

Downing Street was earlier forced on the defensive, arguing that the £300 million package for shareholders was "not compensation".

The deal was "an opportunity to move forward more quickly" and was a "something for something" arrangement. It was also argued that the government had said all along that the shareholders "should get what they were entitled to".

If the new not-for-profit company, Network Rail, is up and running by July the government will save money and speed the improvements to the rail network, argued the prime minister's official spokesman.

Byers' decision was based on a "hard-headed financial assessment of the value that is there in Railtrack group".

Number 10 claimed that the embattled transport secretary had told MPs during the previous Commons fight back that saved his career that no "new" money would given to Railtrack.

The official spokesman referred to Column 961 of October 15 2001's Hansard - parliament's accepted record of who said what.

"Railtrack plc is the body in administration. Railtrack Group is not in administration; it is still being run by the board of directors and it still has shareholders. There will be assets and value in Railtrack Group, and that value can be used for the benefit of shareholders. That is an important point to make, because it shows the need to ensure that we keep the rail network operating-the government's top priority-and that Railtrack Group, which is not in administration, can find value from its assets. If it can do that, that value can be made available to shareholders. The important point, however, is that new government money will not be given to compensate shareholders. We feel that to do so would be inappropriate," Byers said then.

Byers' critics on Labour's backbenches who backed "Red Steve" in the Commons will be enraged by the fact that shareholders will now get money.

The spokesman rejected suggestions that the Railtrack debacle would provide ammunition for the government's opponents of public-private deals, particularly London Underground.

Railtrack had a "unique" set of circumstances and the PPP contracts were subject to rigid guidelines and detailed work.

Despite the fresh row the prime minister was determined to show his support for Byers.

The official spokesman described him as "a grown up politician" who had "taken a hit in some corners".