Comment: ScotRail's fate could be in the hands of Labour
`The reaction from the Stagecoach camp was one of pained innocence. Take advantage of the travelling public? Who us? Can this be the same company that was found to be acting in a manner that was "predatory, deplorable and against the public interest" when the MMC paid a visit to Darlington?'
Tuesday 28 January 1997
Yesterday, however, Mr Souter, who has moved on from buses to trains, had a novel experience even for him. The Department of Trade and Industry has decided not to bother waiting and seeing if Mr Souter is awarded the franchise to run the trains in his native Scotland. Instead, it has already decided that if he does bag ScotRail to go with the two franchises he owns south of the border, then Stagecoach will be packed off to the Monopolies and Mergers Commission.
Amusingly, the reaction from the Stagecoach camp was one of pained innocence. Take advantage of the travelling public? Who us? Can this be the same company that was found to be acting in a manner that was "predatory, deplorable and against the public interest" when the MMC paid a visit to Darlington to see the deregulated bus market in action?
In the case of ScotRail, the Office of Fair Trading and the DTI are not being too specific about possible grounds for concern, referring only to "numerous and complex rail and bus overlaps". But since Stagecoach is the dominant bus operator in Scotland once again, its arch rival FirstBus having just had a nasty run-in with the MMC, it is a fair bet there is plenty of scope to be worried.
If the ScotRail franchise were to go Stagecoach's way, Mr Souter would have his work cut out. Last year revenues of pounds 86m were dwarfed by losses (before subsidy) of pounds 251m - a loss of pounds 168,000 for every mile of track ScotRail operates over.
But the bigger political picture suggests it may not be Mr Souter's worry. The Government wants shot of all 25 passenger franchises come the election. A three-month MMC inquiry could leave the fate of ScotRail open to the whim of an incoming Labour administration. Since there are four other serious players bidding for the business, it would be simpler to leave it to one of them.
Selling out could be the answer for ScotAm
In just over a week, Scottish Amicable policyholders are to be told in more detail exactly why their society has decided to embark on the most complicated demutualisation that has been attempted to date.
The plan has been almost universally panned, not least because of the handsome rewards the management has set aside for itself. Let's hope that next week's circular provides better answers than we've had to date, for though apathy and confusion will work in ScotAm's favour, there is at this stage a serious possibility of members giving their board the old two fingers.
Cutting through the noise and confusion, what this proposal seems to add up to is an attempt to persuade with-profits policyholders to put some of their money into a new, geared-up life insurance business. Should they really be asked to take this risk?
It works like this. The with profits policyholders own the company, which cannot expand because it is short of capital. So in steps Swiss Re and its affiliate, Securitas Capital, with an injection of capital. Since the new policyholders who are to be recruited will not be owners, the profits derived from them will belong largely to the old policyholders (with 20 per cent for Swiss Re and Securitas).
The faster new business grows, the higher the rewards for existing policyholders when Scottish Amicable is floated. In other words, their 80 per cent stake in the business will not in future be diluted by the entry of new with- profits policyholders, thus gearing up the rewards on their equity. None of this disguises the fact that policyholders are being asked to take a punt on the management, whose track record to date has been an undistinguished one. The real question is why it requires demutualisation to achieve this.
It is, in fact, perfectly possible to gear up in this way inside a mutual society, as Friends Provident and others are already doing. The secret is to concentrate on developing other forms of life insurance business that are not with profits and which therefore dilute existing owners less.
The obvious answer to the question why - which Scottish Amicable answers in a deeply unsatisfactory way in confidential briefing notes seen by The Independent - is that the society is so short of capital that it cannot gear up its policyholders' investments at all without outside help.
Others insurers such as London Life and Scottish Equitable have solved the problem by selling out altogether, and maybe that is the answer for Scottish Amicable. The management at ScotAm claims that this proposal will ultimately yield more, and that they would be selling at the bottom of the market if they followed the Scottish Equitable route. All the same, ScotAm and its advisers are asking policyholders to take an awful lot on trust. Without much better answers and explanations, the inevitable conclusion is that this is a plan designed more to benefit management than policyholders.
Ten years on, the yuppie is back
Here's a rather telling fact about Britain, or as John Major likes to describe his country, "the enterprise centre for Europe". The fastest- growing sector of the economy since the trough of the recession in early 1992 was domestic service. Much of the economy's growth during the past five years has stemmed from demand for maids and nannies, GDP figures published yesterday by the Office for National Statistics suggest.
The growth in domestic service, up by a third in nearly five years, was closely followed by industries that the Government would be happier to boast about - air transport, computer services, post and telecommunications, business and financial services. But the numbers make a point we all knew in our bones to be true.
This recovery is being driven by the spending power of the likes of Nicola Horlick and other well-paid types in the professions. The yuppie is back, 10 years older, still buying champagne and mobile phones, gazumping other would-be buyers of houses in smart parts of London, but opting for a Renault Espace rather than a Porsche and no doubt pumping money into private school fees.
It still counts as an economic recovery - but is this the kind of recovery that will win the Government a general election? Mori has yet to conduct an opinion survey of the voting intentions of nannies and maids. The outcome might surprise us all but if domestic service is all that Britain's showpiece flexible labour market can produce in the way of jobs, it isn't going to impress anyone else very much. Curiously, the flip side of the nanny society - hairdressing, facials, beauty parlours and the like - doesn't seem to be showing any growth at all.
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