It's not just Railtrack we are talking about here - this is the whole of PFI, the whole investment programme of the government funded by the private sector

David Davis Tory chairman

In a letter to Chancellor Gordon Brown, more than 20 City fund managers said the transport secretary's Railtrack decision "caused considerable damage to the relationship between government and the whole of the business sector".

Conservative Chairman David Davis said that the letter had wide implications for the government's PFI schemes as a whole.

'Cost millions'

He told BBC Radio 4's Today programme that the taxpayer could be faced with a bill of "hundreds of millions" adding "that is the real penalty for the chaos inside the department".

"It's not just Railtrack we are talking about here - this is the whole of PFI (Private Finance Initiative), the whole investment programme of the government funded by the private sector," said Mr Davis.

This move has had a very dramatic effect on confidence

John Hall, chief executive Brewer Dolphin Holdings

"Either it will be more expensive or it is not going to happen. It is going to cost the taxpayer millions and may damage Railtrack.

"That, at the end of the day, is the real penalty being paid for this chaos in the (transport) department."

'Knock-on effect'

John Hall, chief executive of fund managers Brewin Dolphin Holdings, who signed the letter, said the whole City had been "taken aback" by the decision to force Railtrack into administration.

Mr Byers' action over Railtrack continues to come under scrutiny

"There has been an enormous effect on confidence between the current administration and the City," he told BBC Radio 4's The World at One.

"It is very important that the point was made totally clear to the Chancellor which is what we are trying to do."

The government had not fully thought of the consequences when it made its decision on Railtrack, he said.

And there would be a "knock-on effect" when the government came to raise funds for future projects.

"The government had made great efforts when it first came to power to develop connections with the City and now we feel that this move has had a very dramatic effect on confidence and that it is going to take a long time to heal.

"And it is more than time - it is deeds."

'Issue of trust'

But the Labour chairman of the Commons Treasury Select Committee, John McFall, played down the importance of the Railtrack affair in the City.

"We have got �75bn here - I have never heard of any city person who would refuse to engage in that."

He added that the government remained an "attractive body" for the private sector to deal with.

Mr McFall insisted that the action taken by Mr Byers against Railtrack was necessary as the company "was without money".

But according to the Financial Times, companies including Merrill Lynch Investment Management and UBS Asset Management, are among the signatories to the letter to the chancellor.

The fallout out from the Railtrack affair had raised the "straightforward issue of trust".

"We believe that many of our colleagues in the private sector will now be wary of entering into such relationships and that damage has been caused to the trust that had previously existed between the government and the City," they wrote.