A lot of eyewash over water pay-outs

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FEELING a bit queasy? That will be the water industry's publicity machine in full spate. North West Water is determined to squeeze the last drop of goodwill out of the customer rebate scheme it announced last week. If that means a photo-call in which the £325,000-a-year chairman, Sir Des Pitcher, is snapped watering flowers, so be it.

Nothing is too shamelessly corny for the North West PRs. I've never seen so many photos of dewy-eyed, angelic toddlers doing things with water - bathing in it, drinking it, walking hand-in-hand beside it. Believe me, you need a strong stomach to handle North West Water's publicity material.

The reality is that despite the much trumpeted rebates, most of the 2.2 million householders of the North-west will still be paying more for their water and sewerage. The average annual bill will rise this year from £183 to £186.50.

Of course, North West didn't have to pay out anything. But the company has seen the writing on the wall. It knew it would be politically unacceptable to lift the dividend payout to shareholders without doing something for customers too.

But by welcoming the North West decision, Ian Byatt, the water industry regulator, has raised questions about the way the utilities are governed. It all smacks of regulation on the hoof. If he wants the spoils of capital savings shared out in this way, he should have said so and not reacted to a fait accompli by one firm.

There are now growing demands for American-style regulation, by which utilities are limited to a maximum rate of return on capital. This would certainly stamp out profiteering, but it gives the utilities little or no incentive to become more efficient. The pricing formulae favoured by British regulators have this advantage. The key is to set these and other targets stringently and to do so explicitly. Regulation by nod, wink and personal whim is not the answer.

Armageddon ahoy

THE UK stock market has motored over the last three weeks. Even after its 38- point fall on Friday, the Footsie is still almost 100 points up on the year. Sentiment has changed for the better. The Bundesbank's cut in German interest rates on Thursday added to the roseatte glow in stockbroking offices.

But a good rule of thumb when you're starting to feel bullish is to call Robin Aspinall, the well-regarded market analyst at Panmure Gordon. Mr Aspinall is the arch bear among market pundits, guaranteed to puncture any excessive optimism.

Sure enough, when we spoke on Friday, he was positively Cassandra-esque. He believes the Footsie will fall to 2,600 before the year end. This is not a normal economic cycle, he warns. Confidence has never really filtered through to the housing market, nor to business investment. While the stock market reflects the notion that the economy has another two years of growth in it, the reality, says Mr Aspinall, is that the party - such as it's been - is already nearly over. Before Christmas we will be talking about recession again, he predicts.

Allied to the gloom is the continuing turmoil in currency markets, which the Bundesbank move has done little to calm. The yen's appreciation shows no sign of stopping. Mr Aspinall sees further strengthening from the current 87 yen to the dollar to a heart-stopping 56. Really getting into his stride by now, he points to the growing danger that a sovereign state could default on its debt. Not a Latin American country, but somewhere much closer to home - such as Italy or Sweden. That could be the trigger for serious upheaval.

I don't buy the full Arnageddon story, but Mr Aspinall certainly provides food for thought. The millions of small investors being urged to invest in personal equity plans before the end of the tax year may well get badly burnt - in the short term at least.

Seriously soft landing

THE SERIOUS Fraud Office won its reprieve on Friday, as we foreshadowed in last week's issue. The agency will not be subsumed into the Crown Prosecution Service. Indeed it will be given a greater caseload. It is a victory for George Staple, the beleaguered SFO director.

The SFO has been tarnished by a few serious embarrassments: the failure to bring any convictions in the Blue Arrow case, which cost £35m; the referral of the Guinness convictions to the Court of Appeal; and the bail- jumping of Asil Nadir.

Sometimes the SFO looks too slow, too bureaucratic and not wily enough. But its record isn't all that bad. In its first seven years, it secured convictions in 75 per cent of the cases brought to trial.

But the real test is ahead. The trial of the Maxwell brothers will come under scrutiny like no other. It has been delayed for the third time and is now scheduled to begin on 31 May. Mr Staple's detractors will show no mercy if the SFO trips up under such bright spotlights.

Disgusted of Cheltenham

THE 384,000 borrowers of the Cheltenham & Gloucester Building Society have been badly let down. They duly did as they were advised by the C&G board and on Friday voted in favour of the £1.8bn takeover of the society by Lloyds Bank. Of that £1.8bn, they will receive not a penny, despite surrendering their valuable ownership rights in the society.

The vote came in the very week when the rival Halifax and Leeds societies demonstrated that it is possible for borrowers to share in the bonanza when a society gives up its mutual status. Their merger and flotation will enable savers and borrowers to receive free shares.

C&G borrowers have been betrayed. That betrayal will become all the more apparent each time another converting society succeeds in paying out windfall shares to its borrowers.