Business Comment: Windfall profits tax would be breach of faith

"In no other transaction would it be acceptable to turn around later and say 'whoops, sorry, but we sold at an undervalue and now we want more'. "
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The Independent Online
Every couple of years, that old chestnut, the "windfall profits tax", is dusted off and advanced afresh as a panacea for the Government's problems. It has just made its reappearance. Exponents suggest that by imposing such a tax on the privatised electricity and water utilities the Government could kill two birds with one stone - help solve its financial problems on the one hand while on the other show it is on the side of the good by clobbering the hated utilities. It cannot be denied that the idea has a superficial appeal. Labour embraced it a long time ago. But it doesn't take much thought to realise the Government itself could not even begin to contemplate such a tax.

For a start there would be considerable difficulty in finding an equitable and practical way of imposing it. Regulatory safeguards notwithstanding, the utilities would also ultimately find a way of passing its cost through to consumers, the net effect being nobody would gain. But perhaps the most compelling argument is that it would amount to a substantial breach of faith.

Governments can do what they like and it is always possible ministers have become desperate and unprincipled enough to throw the law of contract to the winds. There are, however, some uncomfortable practical consequences of doing so. Certainly they could kiss goodbye to the remaining features of the privatisation programme - rail and nuclear. Moreover, the City's reputation as one of the world's leading investment centres, which in part is based on Britain's pioneering privatisations, would be seriously undermined.

Governments that impose taxes retrospectively, which is in essence what a windfall profits tax on the utilities would be, do not tend to last for long. Ones that break their promises on the scale that such a tax would amount to - even when the City investor victims are what most newspapers now seem to regard as a disreputable lot - can expect even shorter shrift. It may not be a popular thing to say, but when the Government sold the utilities, it did so on the basis of a prospectus that amounted to a written contract of sale. In no other commercial transaction would it be acceptable to turn round later and say "whoops, sorry, but we sold at an undervalue and now we want more". The Government privatised these companies and it must now live with the consequences, however unpleasant.

Retail giants leave lesser names in shade

Tesco's sunkissed chairman, Sir Ian MacLaurin, had good reason to look pleased with himself yesterday. Only three years ago, the prophets of doom were predicting that the glory days were over for the supermarket groups after a period of headlong expansion. Three factors underpinned their warnings. Archie Norman, then recently appointed as chairman of Asda, paced the high street with the dread phrase "market saturation" emblazoned on his sandwich board. Meanwhile, the Government was clamping down on the development of out-of-town superstores. And to make matters worse, the continental and US discount groups were targeting Britain for expansion. It was enough to put any top grocer off his rocket salad. Or, in Sir Ian's case, his golf.

But after a record set of results from Tesco yesterday you could wonder if the recession ever happened for our grocery giants. The discount threat is under control and the larger supermarket groups have all found different ways of prospering and expanding under a more restrictive planning regime. Clever management can, it seems, transcend even the toughest market conditions.

In Tesco's case, success has come from concentrating on derivative formats such as the smaller Tesco Metro stores and, more recently, the Tesco Express petrol station and convenience stores. Both give the company more of a presence in town centres. Robbed of rapid expansion at home, there are new stores in Europe, with France and Hungary first on the list. Meanwhile, J Sainsbury is branching out further into DIY and expanding in the US. Asda is expanding and Safeway is sprucing up its stores.

Besides size and quality of management, what distinguishes them from their poorer brethren is strong brand identification. The process is one of polarisation. Those with the best "names" - Marks & Spencer, Boots Sainsbury and Tesco - have steamrollered though the past five years, apparently oblivious to the economic climate. Others, such as WH Smith, Woolworth and Sears, have seen that once a brand starts to fade, it can fade fast. Who knows the difference between a branch of Dolcis and of Saxone, for example. Woolworth is well-known, but for what?

With consumer spending remaining weak and the retail sector becoming ever more competitive, that process looks set to accelerate. The strong brands will prosper, while the rest struggle for the crumbs from their table.

The simple truth of Duncan Lewis's exit

It is not often that a senior executive in a FT-SE company quits on an issue of principle without a juicy compensation package. It is even more unusual for the departure to be triggered by the offer of a seat on the board.

That makes Duncan Lewis's resignation last week from Mercury Communications, part of Cable and Wireless, all the more interesting and unusual. Mr Lewis was told by Lord Young, the chairman, and James Ross, the group chief executive, a couple of months ago that he was to be invited onto the board this autumn, but he refused. After bringing some pressure to bear, they then persuaded him to change his mind. Two weeks ago, the issue came to a head again, when Mr Lewis finally backed out and said he would not do it.

Why did this happen so suddenly and unexpectedly? The theory that it was fall-out from a power struggle between Mr Ross and Lord Young may be wide of the mark. Lord Young is the top-level fixer, the man with political contacts, and when he sticks to the area he knows he serves his purpose. His skill and purpose is not that of detailed management. Mr Ross, who he appointed, has been described as the consensus administrator. Inside C&W he was certainly not seen as the natural successor to Lord Young.

The truth of Mr Lewis's resignation may actually be rather simpler. It was probably triggered by the details of the latest reorganisation, which confirmed not least to some of its executives that this was a company in a very muddled state. One example doing the rounds is that the finance director was asked to take responsibility for South-east Asia and the Caribbean. Already in a tough specialist job that is critical to improving City opinion, he found himself working across three time zones.

Critics say that kind of fudging of responsibilities typifies the group's difficulty in deciding whether it is running an investment portfolio, much of which it does not actually manage, or a communications business. As yet there are few signs anybody at the top is getting to grips with the basic conundrum of what Cable & Wireless is about.