Outlook It rather looks as if senior executives at Aviva and RSA spent the weekend stewing. On Friday, when the story broke that RSA had had a £5bn bid for Aviva's general insurance business turned down, both insurers were tight-lipped, refusing to either confirm or deny the gossip. But after a weekend of anonymous sniping from both sides, the two insurers exchanged some pretty spiky statements yesterday.
Aviva's lengthy disclosure more or less accused RSA of trying to get the business off its shareholders on the cheap. RSA's return of fire effectively suggested that Aviva doesn't know what it's doing because it insists on remaining the only insurer in the UK with a composite business model, offering both life and general insurance.
The irascibility of Aviva and RSA is explained by the fact that for both of them, some of the anxieties this putative deal has prompted are just a little too close to home.
Aviva says it has just had a strategic review of its composite approach that highlighted the favourable advantages of the less intensive capital requirements of a general insurance business. Maybe so, but the fact it felt obliged to have such a review in the first place tells you that RSA is not the only party to have raised an eyebrow about its rival's insistence on doing business this way, long after all its competitors have chosen one side or another.
Similarly, RSA will feel it has just showed its hand. It will, of course, talk up the integrational skills of Andy Haste, its chief executive, and his management team, who have successfully pulled off a number of deals to help RSA grow. This deal, however, would dwarf anything they have managed in the past and require them to raise more from shareholders than the current market capitalisation of the company. That is a big ask for investors in a sector that has already this year seen one transformational deal – Pru's bid for AIA – collapse with a failed rights issue. Is Mr Haste still committed to his stated aim of making lots of small acquisitions?
The truth of this matter may just be that RSA was acting opportunistically. Yesterday it pointed out that its offer valued the Aviva businesses at almost 10 times' earnings, a multiple that is generous by historical standards. True enough, but the insurance cycle is in a trough period – so earnings are depressed – and had Aviva said yes, shareholders might, in two years' time, have found themselves complaining about having sold cheaply.
Yesterday's hostilities, then, reflect nervousness about the right way forward for each company, rather than this specific deal. RSA was entitled to make an offer for a business that looks undervalued just now and which would be a valuable addition to it. Equally, Aviva was entitled to say no.
Still, don't expect this drama to end here. The implication of Aviva's statement is that were RSA to offer more money, it might get a different answer. One for Mr Haste to ponder.
The challenges for Sir Alan's successor
So farewell then Sir Alan Budd, who marked his departure from the Office of Budgetary Responsibility with a radio interview yesterday. His comments will have surprised no one: yes, the row last month over the unemployment forecasts that the OBR improved a couple of hours before Prime Minister's Questions damaged its credibility, Sir Alan said, and yes, he thought there was a possibility of a double dip, though he thinks slow growth is more likely.
Sir Alan's formal departure – he stood down on Friday – does, however, underline just how much work there is to be done to restore credibility to an office that could be a valuable addition to the framework of economic management. Some improvements have already been announced – Treasury Select Committee scrutiny of appointments to the OBR, for example, and a secretariat that will move out of the Treasury offices – but until Sir Alan's replacement is named, the OBR will lack any authority.
That appointment may take a little time. The job is being advertised and the closing date is not until tomorrow, so Sir Alan's chair is going to be empty for the foreseeable future. One would hope that someone might be in place for the spending review on 20 October, but it will be touch and go.
Longer-term, the accuracy of the OBR's forecasts will be key, particularly in the context of growing unease about the quality of the predictions coming out of the Bank of England. Proving his or her independence is only one part of the challenge for Sir Alan's successor. The new chief will also have to show they know what they're doing.
Broadband no one can afford to offer
U-turns on broadband policy are becoming something of a habit for Ed Vaizey, the Culture minister. Having supported the previous government's commitment to broadband for all by 2012, Mr Vaizey announced last month that the sums did not add up and that the promise would not now be met until the end of the current Parliament. Now he's decided to dump a commitment to reviewing taxation of the broadband sector, a move that may make rolling out broadband even tougher.
Many of the companies involved in building Britain's fibre-optic broadband infrastructure are bitter about the fact that they pay tax on the size of their networks – so the more scale they add, the more tax they pay. Worse, BT and Virgin, the biggest players, pay their tax bills in a different way, so they may be getting an unfair advantage.
In difficult financial times, the Government is reluctant to commit public money to extending the reach of broadband. Fair enough, but the reality of the private sector is that companies are only prepared to undertake work where there is a commercial return on offer. Mr Vaizey's refusal to even investigate whether the tax system is an impediment to broadband roll-out just looks daft.Reuse content