Clarke's difficulty with figures is worrying

COMMENT

Kenneth Clarke might have complete faith in his own handling of the UK economy (last week's Mansion House speech) but others would be forgiven for just the faintest little hint of doubt. This is nothing as dramatic as full-blown atheism yet (always excepting the Euro-sceptics, of course, who don't count, anyway), but there is a growing band of the mildly agnostic.

On most conventional measures, Mr Clarke's performance has indeed been a highly commendable one. But there is one area where he has fallen prey to a very human characteristic; on nearly all the important numbers he has been over-optimistic, sometimes hopelessly so. Public sector borrowing is just one. Even with the benefit of a pounds 1.1bn net contribution to the Government's finances from the sale of Railtrack, the PSBR last month came in at pounds 3.2bn. The likely overshoot for the year is now anything up to pounds 8bn, which doesn't give a Chancellor promising sound public finances much, if any room, for tax cuts.

If borrowing were the only area of concern, then that might be thought acceptable, but it is actually symptomatic of a whole series of missed forecasts. The Chancellor has been persistently over-optimistic about the scope for improvement in public spending. His growth forecast for this year looks way out of line, something which is expected to be corrected in new Treasury predictions next month that will cut the growth number from 3 per cent to perhaps as low as 2.5 per cent. Even inflation, though plainly tamed, is above target. Not so hot after all, eh?

If the Government were a publicy quoted company, it would never get away with such recklessly misleading predictions. The Treasury's persistent promises of jam tomorrow would long ago have been rattled, and its chief executive thrown overboard. But then a national economy is a rather more complex animal than even the largest of multi-national corporations. The Chancellor perhaps deserves the benefit of the doubt, even if his characteristically relaxed view of the importance of forecasts smacks a little of complacency.

In any case, Mr Clarke's ever-so-convenient difficulty with the figures is hardly unique. It should be recalled that, on average, the PSBR overshoots forecast by pounds 10bn a year. On that measure, the Chancellor isn't doing too badly. And don't forget, the Chancellor's aim is to get the budget back in balance only over "the medium term" (the Mansion House speech again). In Treasury parlance, that's five years away.

But hold on a moment. Five years is a rather longer time horizon than the Treasury was forecasting for a balanced budget at the time of its last statement in November - one year longer to be precise. It seems that once again hope is to be postponed. You don't need to be an expert on these matters to figure out why. If short-term forecasts don't matter very much, it is not going to be hard to make them justify a healthy package of tax-cutting pre-election measures. No wonder Mr Clarke was able to insist in his Mansion House speech that policy was being set on the assumption the present Government would be re-elected. Wonderful thing, the never- never.

Regulators cloud Southern battle

For the time being, the battle for Southern Water is in abeyance but it cannot be too long before the auction hots up once more with a new bid from ScottishPower. Bidding wars are nearly always bad news for the poor unfortunate that ends up with the prize. In this case, however, it is not just shareholders in the two rival bidders - Scottish and Southern Electric - that need to be concerned. Both bids involve a sizeable chunk of debt. As a consequence, regulators too are becoming highly exercised by the possibility of overpaying.

Southern Water already has a quite substantial accumulated backlog of incomplete capital spending - its underspend could be as high as pounds 300m. The last thing regulators want is an over-geared company incapable of meeting its obligations. That way the customer will ultimately end up picking up the tab. The risk of this happening with the Southern Electric bid seem to be rather higher than with the Scottish alternative. The Southern Electric bid is essentially a defensive one to keep the Scots out. Southern Electric may in these circumstances think that to overpay is the lesser of two evils. Not so the regulators, who have become increasingly concerned about the general trend towards equity cancellation, and its replacement with debt, among the utilities. It may well be they have something to say about "sky's the limit" bidding wars.

Baby Aim is a bouncing one-year-old

Today is the first anniversary of the Alternative Investment Market. With a year under its belt, it's worth conducting a short health check. Aim was set up after a long wrangle over how how tightly it should be regulated. The compromise was a market with few rules, and with the main responsibility for ensuring that companies on Aim were honest and decent given to the nominated advisers who bring them to market.

In the event, there have been almost as many new issues on Aim as companies transferring from the old Rule 4.2 market and from the unsuccessful USM, which is being phased out at the end of the year. In the 11 months to the end of May, 80 new entrants to Aim raised pounds 347m new money. Another 82 companies transferred from the 4.2 market and two from the USM.

At the start Aim was slow to produce new money for companies, but then things picked up. Some pounds 39m was raised in March, pounds 56m in April and pounds 53m in May, with market participants predicting a substantial increase this month.

This may not sound large compared with the venture capital needs of British industry. But these are mostly small companies and it is the numbers of new entrants that count - a total of 13 in May alone.

It is hard to buy a large line of shares without moving the price excessively, so larger deals are naturally taking place off market. Increasing the liquidity of the market will remain a key objective. Even so, Ivory & Sime Baronsmead, which raised pounds 44m this spring to invest in an Aim investment trust, is said to be ahead of its target of investing half the funds within three months, and the trading volume of 4.2 stocks has trebled once they moved over to Aim. On the whole then, Aim is fulfilling its purpose of providing a market, and a source of capital, for smaller companies.

The main question mark now is over how the Exchange copes with the collapses that are inevitable in a market of more than 160 small companies. Some will go to the wall because they are intrinsically risky, and if their prospectuses said so, who can complain. But others will be bad apples. The Stock Exchange will have to take a tough line with nominated advisers in such cases if the new market is to establish long-term credibility. But thus far, the babe seems to be in rude health.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions