COMMENT: A speech for all constituencies and all seasons

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The Independent Online
The Chancellor's speech to an audience of engineers yesterday offers endless possibilities for textual analysis. First of all there was the usual modest message about his remarkable achievements in steering the economy to Britain's best combination of growth and inflation for at least a generation.

Secondly, there was his warning not to count on tax cuts. This was obviously directed at members of his own party, baying for an old-fashioned pre- election giveaway. It was also directed at his fellow ministers, for these are the people who must produce the spending cuts that will finance tax cuts without doing too much overt damage to the borrowing requirement. As Mr Clarke likes to point out, this is now on a favourable trend, but it was the giveaway before the last election that made the deficit so unfavourable to begin with.

The warning was also directed at the wider world, in a classic example of dashing hopes in order to spring a pleasant surprise on Budget Day. Luckily, we are now more sophisticated about this type of management of expectations.

Another purpose of the speech was to end the perception that the Chancellor and the Governor of the Bank of England disagree about the state of the economy and what ought to happen to interest rates. This is probably true, in the sense that Mr Clarke and Mr George share the same analysis about where the economy is and where they want it to go. Whether they really share the same ideas about how to get it from here to there is a separate question.

It seems clear that both have decided to wait and see - the Chancellor with a presumption that the next move in base rates might be a fall, the Governor definitely saying it will be a rise. At any rate, it is wise of Mr Clarke to line Mr George up on his side before a very difficult political year. It is equally wise of Mr George to stop sawing at the limb he has stuck the Bank of England out on.

But the ultimate message of Mr Clarke's speech yesterday was its most overt. For Mr Clarke, gambling away the achievement of steady growth and the best inflation performance since the 1960s would be a tragic thing. The Treasury will have to use its thickest smoke and most distorting mirrors to devise a Budget that can keep the Chancellor, his backbenchers and the voters happy without bringing the recent experiment in sound economic management to an unhappy end.

A chance to get things right, for a change

In vast swathes of the world, selling banks to the British used to be a sport on a par with flogging London Bridge to an American tourist. Never were so many bad businesses sold to so many gullible bankers at such inflated prices. Is Bank of Scotland's purchase of BankWest in Australia another case in point?

With luck, Bank of Scotland should be able to break out of the cycle of misery with this one. It has sensibly put a toe in Antipodean water before by taking over and re-fettling a lame New Zealand bank. With Singapore in easy reach - and Bali for weekends - Perth is not a bad jumping-off point for exploiting the rapid economic growth of the Pacific Rim. Despite a suspicion that the price is a touch on the high side there is a good chance of this one working. We shall see.

Curiously, the deal came as NatWest moved closer to getting out of the United States by selling NatWest Bancorp, once a bottomless pit of losses. This is now billed as a success story, turned round by NatWest's best- paid director, John Tugwell.

The bank had moved into property lending at the worst possible time in the areas of the north-eastern United States that were hardest hit by the recession. As an outsider, NatWest was predictably stuffed with all the worst bits of the worst development projects around.

NatWest has never had a very clear idea of what to do next and has kept an open mind about whether to sell. The subsidiary is a north-eastern US bank, with no prospect of developing the leading national position NatWest has in its home market. Yet it is now sitting in the midst of a merger mania which is seeing tremendous consolidation at a state and regional level. It would certainly make sense to get out for a top price at a time when US banks have been selling for 2.5 times book value. But what will it do with the money?

The obvious solution is one that has already occurred to Barclays and other banks with surplus capital: sell Bancorp and return the proceeds to shareholders either with a share buy-back or a special dividend. That would go a long way to making up for the disaster Bancorp represented for shareholders in the 1980s.

Different issues in the latest power bids

Oh, dear. We seem really to have got up Brian Wilson's nose in this column, which may not be too surprising for there have been one or two gratuitous remarks at the Labour trade and industry spokesman's expense. But he really does need to improve his level of analysis (Letters, page 18). There is no U-turn of stance on electricity bids, as his letter implies, merely an informed and pragmatic analysis of the likely course of government thinking on these issues. As far as predicting what will actually happen, as opposed to opining on what should happen, there is no contest. In all four of the cases so far decided, Business Commentary has been right and Mr Wilson, along with most of the press, wrong.

Nor is there any inconsistency in arguing that the latest two bids in this sector -North West Water's bid for Norweb and PowerGen's bid for Midlands Electricity - should, unlike the others, be referred. In the case of three of the previous bids, there was nothing that could concern the competition authorities. It was hard to see what the Monopolies and Mergers Commission could have investigated for what was occurring was a simple change of ownership which in no way altered the structure of the industry. In the fourth case, the Scottish Power bid for Manweb, there were better grounds, but even here they were marginal.

The PowerGen and North West Water bids are plainly different, involving varying degrees of structural change which may indeed be bad for the consumer.

The muddle in Mr Wilson's analysis, which is common enough, is to believe that stopping the takeovers, or at least having them examined by the MMC, would help the consumer get a better deal. Not on the present set-up of rules, regulations and policy guidlines it wouldn't. A better deal for consumers would mean changing the price controls. While the Government could no doubt order an industry-wide reference of the pricing controls, this would be a wholly different thing. When they make these takeover offers at such fancy prices, the bidders risk precisely that. Now that's the sort of free market economics that even Mr Wilson might agree with.