Even the merest hint that a building society chief may have had his fingers in the till (and there is a lot more than that coming out of the Woolwich) sends a shiver down the spine. Building society practice when it comes to directors' pay and perks may always have been more sloppy and lax than anyone now cares to admit. The quid pro quo for lower pay than is common in the banking sector has for those at the top long been a few hidden perks on the side. But the allegation that Peter Robinson used society money and facilities on the scale suggested for his own personal benefit is none the less to most people a deeply shocking one. If you cannot trust a building society manager, who can you trust?
Furthermore, the society's insistence that the affair will have no effect on its planned stock market flotation is plainly nonsense. The man brought out of retirement to fill Mr Robinson's shoes, Donald Kirkham, never wanted to convert in the first place. With a scandal of this sort sitting on its shoulders, Woolwich loses much of its credibility as a serious stock market concern. What's it going to do with its five years of grace as a publicly quoted company - landscape-garden Britain?
Woolwich looks too small even as a specialist bank concentrating on the comparatively narrow territory of domestic mortgage lending, to be a credible player. The rest of the banking world is fast consolidating, or at least trying to. Who is going to trust the Woolwich after this to lead from the front in such a process? Unless a new chief executive of drive and ambition is found in double quick time, the Woolwich might be better off accepting the inevitable and succumbing to someone else's plans for the industry.
What is true of the Woolwich is doubly so of Northern Rock, highly successful though this little building society is. Northern Rock is so small that it won't even be part of the FT-SE 100. Well, perhaps there could be a market for the small, specialist, regional bank, but the stock market won't like very much Northern's planned establishment of a Charitable Foundation, cute and commendable though the idea is. Every year, the Foundation will spend 5 per cent of the company's profits on good Geordie causes. The Foundation's proposed 15 per cent stake in the company, moreover, looks suspiciously like a poison pill. Nonsense, says Christopher Sharpe, Northern's managing director. We don't need poison pills. The City likes successful companies and we plan to survive on our record. Poor naive fool. Lloyds TSB, already the owner of Cheltenham and Gloucester, likes successful building societies too. It would quite like to own another. Perhaps Woolwich and Northern should start talking. Together, they might just about make a credible publicly quoted bank. Apart, they will both look marginalised and weak.
PFI still has a long way to go
When a minister embarks on a morale-building tour of the country it is generally a sure sign of desperation. When he also promises that it will be fact-finding you know he is bracing himself for some particularly unpleasant truths. Quite what Birmingham and Wigan have done to deserve being chosen as the first ports of call for the Financial Secretary, Michael Jack, as he starts his nationwide tour to promote the Private Finance Initiative is not clear.
The minister may survive being bulldozed out of town by angry building contractors but he will be left in no doubt that the PFI has an awful lot still to deliver. Despite Mr Jack's grand claims yesterday, it has a long way to go to fulfil its potential as the way most public sector projects may one day be financed.
The numbers sound impressive - pounds 14bn of deals promised by 1999 and pounds 27bn of projects identified in total. But the delivery has been less smooth. Of the pounds 5bn of deals signed up this financial year, nearly pounds 4bn is accounted for by just three transport projects, and of those, the Channel Tunnel rail link is only being built with the aid of public subsidies approaching pounds 2bn.
Three years on, the PFI is still dogged by two problems. At the supply end it relies upon civil servants who have little concept of risk assessment and even less idea of how to transfer risk to the private sector. At the delivery end, there is a dearth of contractors sufficiently well capitalised to take on projects or even in some cases afford the costs of tendering. The new procurement guidelines published yesterday for civil servants and contractors are to be welcomed. But it is extraordinary that it has taken the Treasury three years to wise up to such basic rules as providing a clear definition of what the public sector's requirements are before going out to tender.
The establishment of departmental champions to see projects through and the determination to whittle the tendering process down to a single preferred bidder will also help. But these measures will only go part way to addressing the criticisms levelled at the PFI and certainly do not meet the demands of some construction groups for a Whitehall department dedicated to negotiating PFI contracts.
At the supply end of the chain there is still a massive job to be done educating civil servants. Simply ensuring that the new procurement guidelines percolate through Whitehall departments and local authorities will be a major feat. At the delivery end, there are still far too many contractors brought up on cost-plus contracts or who make their money on contract claims.
For the PFI to work effectively it has to attract multinationals of the likes of Shell or ICI who are used to project management on a big scale and have the capital base to take on large ventures. The construction industry has long since accepted that the projects brought forward under the PFI will be incremental to existing expenditure. This means that unless the PFI delivers, large gaps will start to appear in the Government's capital spending programme.
The Treasury Select Committee, which will report on the PFI in the next few weeks has identified this as one of the initiative's biggest weaknesses. Conversely, it could be seen as its greatest strength. If the PFI does not deliver it will mean more crumbling roads, delapidated hospitals and schools and overcrowded prisons.
That is one scenario no government wants to take into an election. As a consequence, 1996 is almost certainly the year when the PFI has to prove that its time has come, or quietly expire.Reuse content