Major Railtrack investors are preparing to sue the government over the collapse of rail network operator.

The move could pave the way for a battle royale between ministers and the City, and is likely to make it more difficult to raise private finance for transport projects.

Shareholders were given the grounds for some hope yesterday after it was said they "may get some compensation" - although many still predict investors will see zero return.

Steve Marshall, the chief executive of Railtrack, resigned yesterday in protest at the government's handling of his company's demise.

Accusing the government of "shoddy and unacceptable treatment," Marshall warned that "old rails need hard cash to replace them and soon" and added that "the needs of the rail network are huge and will not go away."

The Rail Passenger's Council said it was "not immediately obvious" how the changes would increase investment into the rail system.

Others have criticised the government for renationalising the railways via the backdoor.