Comment: Confident Clarke makes his boom come true

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The Independent Online
Ken Clarke has for some time been confidently predicting a surge in consumer spending in the next 12 months. It looks as if he was right. He is a confident chap by nature, of course, but it is becoming hard to shake off the suspicion that he can be particularly certain about this forecast because he plans to make sure it comes true.

Call those teenage scribblers in the City naive, but many of them had begun to believe that Mr Clarke had broken the mould of Conservative chancellors. The election cycle could be consigned to the dustbin of history thanks to the monetary policy arrangements and the limits the rhetoric of reducing the size of government placed upon tax cuts - or so the argument went.

It looks a forlorn case now. Tax cuts announced in last November's Budget delivered in April the biggest one-off boost to consumer spending power since the late 1980s. Few believe there will be no reduction in income tax this November.

In a belt and braces move, the Chancellor also cut the cost of borrowing in December, January, March and, catching most analysts on the hop, in June. There is an outside chance he will do so again next week. For all that the City reckons each successive reduction increases the risk that Mr Clarke would have to raise interest rates again before the election, there is actually little danger of this. The inflationary consequences of a consumer spree will take two or three years to emerge, as they did in the late 1980s.

The only obstacle to a pre-election boom lies in the financial markets, which will demand minimal policy credibility. Falling share prices are a reminder that even Tory chancellors in desperate need of votes have to think about the future consequences of their policies.

Somerfield in danger of being left on shelf

The first casualty of the faltering markets could well be the flotation of the supermarket group Somerfield. By last night just 30 per cent of the shares on offer had been subscribed for despite some heavyweight arm- twisting by Somerfield's broker, NatWest Markets.

If there is a further decline today then advisers Kleinwort Benson will surely have little option but to advise Somerfield chief executive David Simons to pull the float. That would make the offer one of the biggest casualties of a weak market in recent years. But if it does fail it would be wrong to blame it solely on the markets. The institutions have been sniffy about Somerfield for some time and their caution was reinforced by the profits warning last week from Iceland. Last Friday's cut in the price of this issue, rather than making Somerfield look more attractive, merely served to underline those worries.

The story yesterday, hotly denied of course, was that NatWest had been doing the rounds of the banks that hold debt in Somerfield's parent company Isoceles, suggesting that if they wanted to see their loans repaid they might like to ensure the success of the flotation by subscribing for shares.

It is a tricky call. Banks understandably dislike swapping debt for equity because it does not pay interest and ranks at the bottom of the creditors' pile. On the other hand, if the flotation is aborted then the management, all of whom are on big bonuses, could easily jump ship and leave Somerfield to implode, in which case the debt would be worth very little.

Kleinwort has until this evening to underwrite the offer. Unless there is some fancy footwork or the markets rebound, the omens do not look good.

Bank makes sure buck stops at the top

Accountability will now begin at the top both in the banking and securities worlds. The Bank of England plans to ask chief executives and chief financial officers to submit an annual statement of whether effective internal controls have been maintained in their organisations. The auditors are likely to be asked for a similar piece of paper.

Since many of the recent collapses and frauds, and especially Barings, have been ultimately due to the failure of top management to install proper controls and keep them up to scratch, this could prove one of the Bank's most significant changes.

The intention is not in the first instance to prepare a trap for chief executives, hanging them out to dry when things go wrong, with their signed statements as the evidence.

Howard Davies, the deputy governor masterminding the improvements in the supervision department, believes that first and foremost the new procedure will concentrate senior minds on their responsibilities.

But those bits of paper will certainly make it easier to nail management deficiencies in some future Barings. Coincidentally, the plan has been adopted in the same week as the Securities and Futures Authority considers new rules that also make sure the buck does not stop until it reaches the top.

Mr Davies' review makes lots of sensible proposals for improving the efficiency and effectiveness of supervision. It also rejects extremists - yes , even supervision has those - who either want a supervisory team installed permanently in every bank or who want to abolish the whole process and leave the soundness of the financial system to caveat emptor and the market's judgement.

But the most disturbing aspect of the review is the revelation in the Arthur Andersen report of a dejected supervision department with dreadful morale and inadequate expertise and experience. Mr Davies must be hoping there are no banking disasters to overtake him during the three years he expects the overhaul to take.

Morton looks at life after Eurotunnel

Can it really be true that Sir Alastair Morton is quitting Eurotunnel after nine tumultuous years? Notwithstanding yesterday's announcement that he is to be succeeded as chairman by Robert Malpas, there will be plenty of bankers, contractors, ministers, ferry operators and, yes, journalists, who won't quite bring themselves to believe it until he has been physically removed.

Love him or loathe him, there can be little doubt that without Sir Alastair the tunnel would never have been built. There is now just the small matter of the timing of his departure, which is intended to coincide with the satisfactory completion of debt rescheduling negotiations with Eurotunnel's 225 banks. Sir Alastair says he would be disappointed if he were still with Eurotunnel this Christmas but given the history of these negotiations no one should be surprised at anything.

His successor will inherit a transport system which, though used predominantly by Brits, is becoming increasingly French in ownership and management. Which just leaves the question of what Sir Alastair will do for an encore. Who knows, there might soon be a vacancy for a new chairman at P&O.

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