COMMENT: Public finances are not in such a bad state

`The way to read these figures is not as a crushing indictment of the last Government's management of the economy but rather the reverse'

Only a new government could cynically attempt to make the public finances actually look worse than they probably are; usually in government it is the other way round with the Chancellor desperately trying to cook the books to make them look better. But then this is not a Government looking for excuses to cut taxes; no, the purpose here is to find a good reason for raising them. If that's what the 2 July Budget brings, Gordon Brown will be able to say: "But just look at the mess the Tories left us with. We've got to sort it out somehow or other."

In truth it is impossible to say with any certainty whether the picture painted of the public finances by this latest assessment is any better than the last. Even Sir John Bourn, head of the National Audit Office, insists in approving the new assumptions that they are not the only ones that can be reconciled with the evidence. Though he doesn't actually say it, he implies that the last set of assumptions were equally good.

In any case, the real practical effect of the changes are rather less dramatic than the headline figure of pounds 20bn would indicate. The effect in the present financial year is just pounds 500m in extra public borrowings and even next year it is only pounds 3.25bn. After that the figures begin to escalate quite markedly but, as anyone in the City will tell you, forecasting that far out becomes largely guesswork whatever the assumptions.

The way to read these figures, then, is not as a crushing indictment of the last Government's management of the economy, but rather the reverse. Though the state of the public finances is nothing to boast about, it is arguably no worse than Kenneth Clarke pretended. The new assumptions on growth, unemployment, privatisation proceeds and the spend-to-save programme are probably more conservative than they need to be.

All the same, Mr Brown has been clever in opening up the new approach to independent scrutiny and making it wholly transparent. That way nobody can complain that it is just a political gimmick. And after so many years of overoptimism about the public finances, it is probably no bad thing for the Government to err on the side of caution for a while.

The final verdict goes to the markets, which though well prepared for yesterday's NAO report, would scarcely have been any more moved had they not been. This is quite a turn up for the books, for the traditional response of markets when confronted by a new Labour government complaining bitterly about the economy being in a much worse state than everyone thought is to bring on a fully blown sterling crisis.

Nationwide is safe - for the time being

As blinding flashes on the road to Damascus go, Michael Hardern's sudden about-turn on building society mutuality takes some beating. This self- styled "freelance butler" has over the years made so much of a nuisance of himself attempting to persuade members to demutualise their societies that he's actually been thrown out of some of them. His latest campaign with the Nationwide has whipped the carpetbaggers up into such a frenzy of anticipation that the company has been forced to close its doors to all new savers, the first time this has happened with a major society. Bizarrely, Mr Hardern has now changed his mind and admits: "I was wrong."

His rambling and sometimes incoherent remarks at a press conference in a central London cafe yesterday might suggest that his conversion to the cause of mutuality is less than complete. He and his four fellow travellers haven't yet dropped their plans to stand for election to the board at next month's annual general meeting, for instance.

Nor does the promise of pounds 1,000 to every member if they vote him onto the board seem to have gone, though quite where the money is going to come from in the absence of demutualisation is anyone's guess. All the same, Brian Davis, Nationwide's beleaguered chief executive, must take whatever support he can get these days and to have the enemy jump the fence in this extraordinary fashion so late in the day can only be a bonus in his dogged defence of mutuality.

It is often said that had the campaign for conversion come from a more credible source than Mr Hardern and his merry band of brigands, it would have swept all before it. As it is, Nationwide now seems to have seen off the threat, for the time being at least. How much longer it can hope to do so depends on its continuing ability to offer a genuine mutual benefit by way of keener mortgage and savings rates than its now converted competitors. At the moment that benefit is real and tangible, so much so that there may actually be a public policy case for preserving the society's mutuality. For if Nationwide converted too, there is not much doubt that mortgage rates would be higher and saving rates lower, not just at Nationwide, but across the board. But then again, not even Margaret Beckett would find it easy to refer a building society conversion to the Monopolies & Mergers Commission.

Who will sit in Lord Prior's chair?

Wanted: chairman for large defence, electronics and telecoms group, salary circa pounds 300,000, previous experience of George Simpson an advantage. Ex- Cabinet ministers need not apply.

GEC yesterday formally launched the search for a new chairman by announcing that Jim Prior will be stepping down next April after 13 long years in the saddle, first with Arnold Weinstock and, more recently, George Simpson.

Like so many other changes at GEC since Mr Simpson arrived last September, this one will be more than skin deep. He began by tearing up Lord Weinstock's much-treasured management reporting lines by putting a beefed-up executive team in charge of discrete sectors of the business.

The change of chairman will be no less significant since GEC intends to bring in more than just a new face. Unlike Lord Prior, the successful candidate will come with a background in business, not politics. The obvious political contenders - Hezza or perhaps Ken Clarke - lost most of their currency anyway when Labour won the election. And in any case, the new politics and new Labour's ethical approach to defence sales dictate that the chairman of GEC needs to be someone versed as much in running a large international business as stitching up arms sales in smoke-filled Whitehall rooms.

That is not to say the successful candidate won't be someone with a background in defence. Indeed as we report elsewhere on this page, one or two such names have already been put in the frame.

Marconi, the defence electronics business, is a big slice of GEC and may yet find itself part of an even bigger combination along with British Aerospace's miliary arm. But Mr Simpson, having worked for both companies, could take care of that. There is as important a job to do with the GEC's two big civil joint ventures - GPT in telecoms and GEC-Alsthom. The word is that Lord Weinstock will have no say in Lord Prior's replacement having been shuffled upstairs. We shall see.

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