Business View: Why Brown should fear a solution to the pensions crisis

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The Independent Online

Gordon Brown does not like David Blunkett. And David Blunkett does not like Gordon Brown. That, I'm afraid, is not news. What matters is how the two mesh together as Chancellor and Work and Pensions Secretary.

Gordon Brown does not like David Blunkett. And David Blunkett does not like Gordon Brown. That, I'm afraid, is not news. What matters is how the two mesh together as Chancellor and Work and Pensions Secretary.

Now it does not take a genius, or Adair Turner, to tell us we have a pensions crisis. Shortly, though, Mr Turner will tell us how we might get out of it. The former CBI boss's prescription is likely to involve "soft compulsion" - an oxymoron that will force employers to pay large amounts into pension schemes and then twist their workers' arms to follow suit. The more people pay into schemes, the less of a crisis this pension debacle seems.

Indeed, I can confidently predict that the amount paid into pensions will start rising quite sharply in the next few months. This is nothing to do with Mr Turner, more with a clause in the Pensions Act that allows trustees of pension schemes to force firms to increase their contributions if a scheme is in deficit.

This clause, which starts biting in September, will prove a headache for companies like British Airways (wonderfully described by Frank Field MP as "a pension scheme which occasionally flies planes to earn a little bit of income") and Invensys. But it will see a speeding-up of the process of getting rid of the pensions deficit crisis (though this still leaves the "not saving enough for our old age" crisis).

The only problem is that while making large contributions may be music to Mr Blunkett's ears, it is not good news for Mr Brown. For every quid paid into a pension plan by a big company, the Treasury loses 30p in corporation tax. And the Treasury can ill afford this, given that it has only stayed within Mr Brown's borrowing limits by the skin of its teeth.

No one has a really good estimate of how bad this news is going to be. But let's assume the accumulated pension fund deficits of UK firms stand at some £100bn (which is pretty conservative). If, on average, trustees give companies five years to pay off their deficit, that is an extra £20bn a year going into the schemes. This will be a big drain on corporate cashflows. And a £6bn-a-year loss to the Treasury.

Critics of Mr Brown will say he reaps what he sows, as his decision to claw back tax allowances on dividends is said to have hit pension funds by £5bn a year and contributed greatly to the crisis we are in. He should not look to Mr Blunkett for sympathy.

Golden Diamond

President of Barclays. It doesn't sound like a job title. More like a pub name. Or a euphemism. But it is the moniker that is being taken by Barclays' £15m man, Bob Diamond, now he has finally been promoted to the board.

His timing is hardly impeccable. By all accounts, the handsomely paid American should have been on the board years ago. He has been running Barclays Capital for the best part of a decade, and has had Barclays Global Investors under his wing for two years, and Barclays Private Clients for one.

His arrival, though, was overshadowed by a warning on bad debts in the credit card and personal loan business. This - along with some trepidation over the £2.5bn that Barclays is ploughing into South Africa - has the City a little jittery about the bank, though every time the shares slip, a bid rumour sends them bank up again.

But if I were going to worry about Barclays, it would not be because of credit cards or Africa, it would be about Mr Diamond's fiefdom. History suggests that capital markets businesses find it hard to maintain the profit margins long enjoyed by Barclays Capital without either having to pay staff most of the profits to keep them, or taking too big a risk and falling flat on their face. Mr Diamond may have found the holy grail of investment banking - making it a sustainable high-margin business. If he has, president of Barclays may not be a grand enough title.

j.nisse@independent.co.uk

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