COMMENT : Labour should think about a Tube sell-off

So how is the Government planning to privatise the London Underground? The question might seem something of an academic one given that the present lot are unlikely to be in power for much longer. For those who are interested in such musings, however, there was not much enlightenment in yesterday's formal statement by the Transport Secretary, Sir George Young. His back- of-the-envelope sketch of how the sell-off might work was vague, to say the least.

There are basically three options: sell the network off as a single operation; sell off lines individually; or use the British Rail model with a track company to which different train operators would pay fees. Unsurprisingly, given the looming election and Labour's opposition to privatisation of the Tube, there hasn't been much work done in the City yet on which of these options might yield the best result.

Whatever the outcome of the election, it will not alter the Tube's severe investment backlog, estimated at about pounds 1.2bn and rising fast. Underground executives have already had to scrap pounds 700m of improvements over the next three years. With Gordon Brown donning his hair shirt over public spending, the Underground can forget about asking for increases in subsidies.

So it may well be that eventually Labour is forced to dust off the privatisation option despite its distaste. The alternative - a series of investment partnerships with private capital - looks both messy and impractical. As, too, does a publicly owned Underground network allowed to raise its own capital through revenue linked bonds, for while this might technically remove the company from the public finances, in truth it doesn't fool anyone. It is just Government borrowing by another name, and expensive borrowing to boot.

If anything, the Tube system is actually easier to privatise than the rail network. "It certainly isn't the kind of basket case the Government makes out," said one investment banker. The Tube had sales last year of pounds 937m, from which it made an operating profit of pounds 130m. It also received state subsidies worth pounds 383m. On paper that makes it a quite bankable proposition, capable of absorbing substantial quantities of debt to fund investment. Not such an academic question after all, it would seem.

NatWest may regret its caution

"A complex set of results from a group in transition," was how Nick Collier, banking analyst at Morgan Stanley, chose to describe NatWest's results yesterday. A more charitable way of looking at them is that somewhere in there, hidden beneath the confusion of disposals and acquisitions, there could be a good set of results trying to get out.

So let's have a look at what's been happening at NatWest over the last year or so. What the bank realised by selling Bancorp in the US and Banco NatWest Espana has been reinvested in bolt-on acquisitions for the investment banking operation - Gartmore, Hambro Magan and Gleacher in the US. In capital terms, the amount NatWest raised selling off its remaining stake in 3i paid for provisions for branch closures in its main UK retail banking operation. The cost of dividends and share repurchases was roughly balanced by retained profits from continuing operations.

The net effect of all this toing and froing, then, is a surprisingly uncomplex and neutral one. What NatWest made last year, it has now spent in a careful, considered and piecemeal way. The stock market's disappointment with the results yesterday was more a reflection of the lack of any proposals for a renewed share buy-back programme than any immediate concern with underlying performance.

There are, however, some worrying clouds on the horizon. One of the outward manifestations is the continuing high cost, relative to revenue, of investment in information technology. While this is an essential ingredient of modern banking, it highlights an obvious weakness in NatWest's long-term strategy. Once upon a time NatWest was the largest of the big four clearing banks in terms of market capitalisation. But from the Blue Arrow scandal in the 1980s onwards, its approach has been a highly cautious and conservative one, and it now finds itself number four in the hierarchy by quite a long way. Lloyds TSB is now about double the size. NatWest will also be dwarfed by the Halifax when it is floated later this year.

NatWest's reluctance to grasp the nettle and make a quantum leap may prove to have been the wrong approach. The danger for NatWest is that as a middle-ranking player, both in retail financial services and investment banking, it will find itself progressively squeezed, neither small enough to thrive in specialist niche markets, nor big enough to compete with the lead players at the commodity end of these businesses.

Greenspan should try some plain speaking

Alan Greenspan, the most powerful man in financial markets, is likely to be a shade more explicit than usual when he starts his twice-yearly Congressional testimony today - the so called Humphrey Hawkins testimony. The man who once complained that if his meaning was clear, he must have been misunderstood, has a clear enough message to get across this time round.

At a minimum, Mr Greenspan is likely to repeat his Christmas warning about the "irrational exuberance" of US stock markets. After a small hiccup, the Dow swallowed this criticism and has climbed another 11 per cent in just over two months. If it kept up the same pace, it would be approaching the 12,000 level by next December. The Fed chairman is not going to sit back and let that kind of bubble develop unhindered. He will want to fire another warning shot, flagging up the prospect of an increase in interest rates.

The Fed already has a bias towards tightening. Its last published minutes stressed the need for a swift reaction to the first hint of inflationary pressure to counter any tendency for "higher inflation expectations to be embedded in financial markets".

What has happened since then is an unmistakable upward creep in labour costs. Both wages and, even more so, benefits, have been rising for about a year. The pace has accelerated during the past three months. Other indicators, such as monetary growth, are also flashing amber. So even without the irrational exuberance of stock prices, the chairman of the Fed has quite enough ammunition to justify a rate rise in the near future.

If the stock market reacts to this week's testimony with a sizeable correction, it could postpone the day of reckoning. For it is in the price of shares and other assets that the inflationary froth is most evident. If not, there is an odds-on chance of a rise in US interest rates next month. In his testimony last summer Mr Greenspan said: "I am trying to think of a way to answer that question by putting more words into fewer ideas than I usually do." You have to think about that one, don't you? This time round Mr Greenspan would be well advised to forget his fondness for the Delphic and deliver an unambiguous message to markets: read his lips.

Start your day with The Independent, sign up for daily news emails
News
The guide, since withdrawn, used illustrations and text to help people understand the court process (Getty)
newsMinistry of Justice gets law 'terribly wrong' in its guide to courts
News
Bobbi Kristina Brown with her mother Whitney Houston in 2011
people
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
scienceFeed someone a big omelette, and they may give twice as much, thanks to a compound in the eggs
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
PROMOTED VIDEO
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
News
i100
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links