Clarke's luck with prices may be running out

While the Chancellor, Kenneth Clarke, "couldn't possibly comment" on the near certainty of a tax-cutting Budget, he was quick to say something at yesterday's Conservative Party conference about the extremely disappointing inflation figures for September, which he blamed largely on the effect of a hot summer on food prices. Inflation, he claimed, remained under control.

If Mr Clarke is to do more than tease the country when he delivers the Budget, he had better be right. Lower than expected inflation has been vital in allowing him to squeeze public spending plans. It has meant that wage inflation has remained low, making the public sector pay-bill freeze much easier to implement.

The cost of getting it wrong is graphically illustrated by the impact of the September inflation figure on social security expenditure. With inflation at almost 4 per cent rather than the 3 per cent projected at the time of the last Budget, the Chancellor now has to find an extra pounds 650m to uprate social security benefits to take account of inflation. If inflation continued to worsen, this could lay the ground for a pick-up in pay inflation next year, which would knock through to the public sector.

It is, however, still too early to conclude that the game is up on retail price inflation, which has tended to surprise this year by coming in below expectations. Although a rise in seasonal food prices accounted for a quarter of the jump in the inflation rate, the main drive came from an attempt by retailers to rebuild their margins.

We have been here before. So far, consumer resistance to higher prices has largely prevailed. The Confederation of British Industry's distributive trades survey for September suggests that consumers are continuing to punish retailers for their attempt to push up prices by withholding their custom. For all his slip-ups, Kenneth Clarke has been a lucky Chancellor so far. His luck may hold but he will be watching next week's retail sales figures as anxiously as anyone.

North West's strategy is seriously flawed

It is always possible that Sir Desmond Pitcher, chairman of North West Water, will prove the rest of us wrong but it seems unlikely. While there have certainly been more seriously flawed takeovers than North West Water's bid for Norweb, there have not been many in the pounds 1.8bn league. The best that North West shareholders can expect from the high price being exacted for this Lancastrian folie de grandeur is that one and one will end up equalling two; much more likely it will equal a good deal less. The ease with which North West has hoovered up nearly 30 per cent of Norweb's share capital shows the market's strong preference in this case for cash over shares. You do not have to probe very far to find out why.

Forget all the talk about synergies. It is delusion to believe they can possibly exist between water and electricity companies. If there is commercial merit to this takeover it is to do with cost-cutting, cash flow and tax, not industrial logic. Deals done purely for tax reasons are nearly always bad ones; the tax rules can be changed. As for the match between the cash generating attributes of an electricity company and the cash needs of a water company, it remains to be seen how this will survive the effects of the last review of electricity tariff controls.

That leaves cost-cutting, where the scope is clearly considerable. North West's record, however, hardly inspires confidence that it is up to the task. The spanking new pounds 350m computerised billing system North West is so keen to promote, is, in fact, nothing to boast about. It is an IT white elephant with few redeeming features. Like all IT, it is unlikely to be easily adaptable to dealing with the entirely different and more complex billing system that is used by the electricity industry. The scope for costly cock-ups in putting in place the combined facilities management company is substantial.

To make matters worse, North West may have been forced to overpay for Norweb. It is to be hoped that the now almost universal perception of this deal - that it is being driven primarily by fees and ego - is wrong. Sir Desmond and his team are going to have to work hard to overcome it, however. A windfall utilities tax, by this Government or the next, would seal its fate as one of the most ill-judged and ill-conceived takeovers of the present merger boom.

Why no word on the nuclear sale?

Few would disagree that nuclear and rail are the dogs of the Government's privatisation programme. One barked with joy this week, after Sir George Young, the Transport Secretary, announced the Railtrack sale would definitely go ahead in the spring. The other stayed conspicuously silent. Not a word of the nuclear sale was mentioned in the conference speech by Ian Lang, President of the Board of Trade and the minister responsible.

This could be no more than an oversight, or perhaps it reflects the Government's rough indication a few months ago that it would like the nuclear sale to go ahead next summer. Why say more at this stage? On the other hand, if Sir George dared boast at the party conference that he was determined to push through something as unpopular as the rail sale - once dubbed the poll tax on wheels - why is Mr Lang not barking as loudly?

The nuclear companies are unaware of any change of timetable and perhaps there is none, as yet. The sale of British Energy, as it is called, requires a complex merger of two firms and the separation from the organisation of the Magnox reactors, under terms still being argued through with British Nuclear Fuels, their prospective (and reluctant) new owner.

Does silence indicate that the Government, too, is wondering whether it can pull off the nuclear sale? If it slips as little as three months into the autumn the risk of becoming snarled up in an election campaign will be enormous. The market will not be in the mood to buy something so suspect at poll-watching time, and the less the electorate has to be reminded of nuclear power at the hustings the better.

Railtrack is now looking rather different. The City remains deeply sceptical about the company, which is reliant for its income on indirect subsidies funnelled through the train operators that use its services. But Sir George really means to push it through. As the seller, the Government has the whip hand. Not only can it adjust the price and the debt levels to smarten up Railtrack for City consumption, it could also, if pressed, offer guarantees against the costs of changes in regulation and taxation, to offset some of the uncertainty Labour is generating with its threats of renationalisation. Such pledges have already been made to bidders for rail franchises.

The odds are that Railtrack will go through, albeit on terms so generous that it will make even the great regional electricity company giveaway look reasonable by comparison. But it is going to take the re-election of John Major to get nuclear into the private sector.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Highs and lows of the cast's careers since 2004
News
news
New Articles
i100... with this review
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam