Budget just a sideshow to real consumer power

City & Business
I DON'T know what awaits the British economy next year, but I do know better than to search for the answer in last week's Budget. Business people seeking guidance on how to plan for 1996 would do as well examining the carcass of a dead chicken as the entrails of Mr Clarke's speech.

For the big determinants of economic activity next year are largely outside his control. He can tinker at the edges, he can plonk pounds 3bn of tax cuts under the Christmas tree. He can even cut interest rates a notch - and probably will very shortly.

All these things will make some difference. But not much: the Chancellor is too boxed in by inflation targets and sterling. The attention paid to the Budget is increasingly absurd. It has has become an industry in its own right: I'm sitting at my desk buried under a pile of post-Budget circulars, seemingly from every accountant and stockbroker in the country.

If only one-tenth as much analysis went into some non-Budget factors - imponderables that will have a much bigger impact on business next year.

The biggest of these unknowns is the Tessa question. The first Tessas - Tax Exempt Special Savings Accounts - mature next year. For the first time in five years, Tessa savers will be able to touch their savings without incurring penalties. Huge sums will be unlocked. During the fiscal year around pounds 30bn of Tessas mature, pounds 20bn of them in the first three months. To put Mr Clarke's 1p cut in basic rate tax into perspective, pounds 30bn is equivalent to an 18p cut!

Of course it will not all be spent: most of it will be re-invested in new savings plans or used to pay off part of the mortgage. But if even a fraction ends up in consumer spending, it will dwarf Mr Clarke's measures.

Imponderable number two is the impact of the windfall gains about to be made by millions of building society account holders. Within the next 18 months, members of the Halifax society stand to receive free shares worth pounds 500 or more. Other societies are also planning to unlock their reserves for the benefit of their members. An estimated pounds 13bn of free shares - easily convertible into cash - could be injected into the wider economy.

These really are windfalls: few people are fully aware that their membership of building society is a valuable asset, convertible into cash. Some may go and spend the proceeds on a holiday or the downpayment on a new car.

Again, the sums dwarf Mr Clarke's tinkerings. Of course, job insecurity, rising unemployment and the weak housing market may dissuade people from a spree. But the sheer quantity of cash being unlocked may just be enough to create a buoyant year for business.

Popular capitalism

ACTUALLY, there was something interesting in the Budget - Mr Clarke's reference to "popular capitalism". The phrase was last in vogue in 1986. Remember the British Gas privatisation and the dreaded "Sid" campaign? Four and a half million Sids took the plunge. Those still invested in the company have found popular capitalism is not all roses. Their return has been distinctly pedestrian.

Of course, most privatisations have produced spectacular returns for shareholders. But there is no evidence they have encouraged more than a handful of investors to venture into deeper waters, investing directly in other equities.

Mr Clarke's proud boast that the number of small shareholders has tripled since 1979 conceals the fact that shareholder numbers have actually shrunk by about a million over the last four years - to 10 million.

Now the Government is embracing an alternative vision of popular capitalism. People's Capitalism Mark II is about people investing in their own employers. The idea is that the humblest shop floor worker should share in a company's stock market success - through Save-As-You-Earn schemes or profit-sharing arrangements that allow employees to receive free shares. Both arrangements enjoy tax concessions.

Mr Clarke's reduction in the qualifying saving period for SAYE schemes and reduction in the qualifying contribution will undoubtedly boost its appeal. There are already 1 million SAYE investors.

The new tax concession on profits on the first pounds 20,000 of profits from share options is another significant step.

All good stuff, but encouraging people to invest in their own employers can only go so far. The last place the modestly paid should be investing is in their own employer: if it were to go bust, they'd end up losing their job and their nest egg.

Phase III of popular capitalism has to be about people taking an interest in and responsibility for the biggest investment of all - their pension. That could happen more quickly than we might think. Everyone recognises the state is not going to provide anything but the most ragged of safety nets. Property is no longer the cast-iron investment it once seemed. More than ever, people will be relying on pensions for security in old age.

Pension investment will come under scrutiny as never before. People will be ever more reluctant to hand over large sums to fund managers who take 20 to 30 per cent of the pension pot in fees, yet produce an investment performance that in some cases could be equalled by chimps throwing darts at the share prices page.

Only when people start subjecting their pension schemes, their pension- fund trustees and their fund managers to serious scrutiny will People's Capitalism really have come of age.

Young guns for pay-off

IT SEEMS you do not need a long-term rolling contract to demand a monster pay-off if you are sacked.

Lord Young is trying to wrest more than pounds 2.5m from Cable & Wireless, the company that ousted him as executive chairman after an acrimonious boardroom row last month.

Lord Young has no formal contract with the company and, according to the Financial Times, his claim for compensation is based on a letter written more than 10 years ago by the company's long-deceased former chairman, Lord Sharp.

Either the letter does not have the status of a contract, in which case the non-executive directors should send Lord Young away with a flea in his ear. Or it does have the status of a contract, in which case the shareholders may have been misled: the 1995 annual report categorically states he has no contract with the company. All very rum.