David Prosser: BP on track to restore dividend in 2011 but holds breath on negligence call
Investors will hope the assumption that BP has not underestimated its liabilities, as it did once before after the Texas City 2005 disaster, doesnot embarrass them
Friday 10 December 2010
Outlook BP has had a good week so far. That might be an odd thing to say given the revelation on Wednesday that a rig worker might have been able to prevent the Deepwater Horizon disaster in the Gulf of Mexico had he not been on a cigarette break. Even odder, perhaps, given the fact that Bill Reilly, the man chairing the US National Commission on the oil spill, has just branded BP "breathtakingly inept".
Here's the thing though. The smoker who left his post was an employee of Halliburton, one of BP's partners in the Gulf, rather than the British company itself. And Mr Reilly's critique of BP was extended to Halliburton too, as well as to Transocean, the operator of the rig. In fact, Mr Reilly's harshest words were reserved for a fourth company, which he says is hindering his inquiry by failing to co-operate.
It is important that BP does not have to shoulder the full responsibility for the spill when Mr Reilly makes his final report to President Obama in the New Year. And not just because sharing the blame might leave BP feeling just a little less uncomfortable.
What is more important is that if Mr Reilly finds the British company only jointly culpable for what happened, he is much less likely to say it was guilty of gross negligence – the judgment that would quadruple the fines it is currently expecting to face, possibly to as much as $21bn.
Since the maelstrom of the summer, BP shares have recovered almost half the losses incurred in the aftermath of April's accident. Bob Dudley, the company's new chief executive, has also said that he hopes to be able to begin paying dividends again in the new year. Yet that aspiration – and the share price uplift – is based on BP's current estimate of a bill for Deepwater Horizon that comes in no higher than $40bn (£25bn) or so.
Investors will hope the assumption that BP has not underestimated its liabilities, as it did once before, following the Texas City disaster of 2005, does not embarrass them. A gross negligence verdict from the National Commission would certainly undermine the oil company's sums.
Coalition pension focus hardly fundamental
With so many pressing issues to confront, it is remarkable that the Coalition Government has made the abolition of compulsory annuity purchases such a priority, publishing its proposals for a change in the law yesterday just seven months after coming to office. All the more so since this is a reform that may have been demanded by a vociferous lobby but which actually benefits only a tiny number of people. Worse, it asks less well-off pension savers to subsidise a windfall for the wealthy.
The campaign for abolition of compulsory annuity purchase has always been based on two claims: that savers should be free to make their own decisions about what they do with their pension funds, and that people who die early on in retirement have handed over substantial wealth to an annuity provider that they might otherwise have been able to leave to dependents. The fact that annuity rates have fallen sharply in recent times has only added to the complaints, though in the context of low interest rates, the products do not look such poor value.
In fact, there are good counter-arguments to both these claims. Since taxpayers pay for generous reliefs on pension savings, it is only fair there are rules to ensure people do not spend their funds too quickly and then ask taxpayers to support them all over again via means-tested benefits. And those tax reliefs are there to help people provide for old age, not to finance large inheritances.
Still, leaving those arguments aside, some odd logic has been applied in the process of devising yesterday's proposals. For example, there will now be a tax charge of 55 per cent on pension fund savings passed on to heirs. Yet basic-rate taxpayers get an uplift of just 25 per cent on their savings from tax reliefs, while higher-rate taxpayers get 66 per cent.
Similarly, there are circumstances in which people will be able to pass on pension funds to their heirs free of tax, if they die before age 75 without having touched their savings. That will only apply to people wealthy enough to live off other income.
The broader point is that the vast majority of people will still end up using an annuity to convert their pension savings into income because the new regime is too unwieldy to bother with unless you have a large fund. Yet no reform of the annuity rules, which lock people into a single provider, often the default, poor-value option from the company with which they have saved, is proposed. As I say, this is a strange sense of priority.
Change the law and make RBS report public
Is Lord Turner, the chairman of the Financial Services Authority, in a minority of one in insisting the regulator cannot publish its report into the near collapse of Royal Bank of Scotland? Former City Minister Lord Myners wants the RBS report published. So does Business Minister Vince Cable. Even Sir Fred Goodwin, the man accused of running RBS into the ground, has let it be known he does not object.
Here's the problem, though. If Lord Turner has received advice that publishing the RBS report would break the law, he can't do it, even if, as he says, he feels "uncomfortable" with suppressing it. And instead of bellyaching about the regulator's failure to publish, people should be calling for a change in the law – particularly Mr Cable, who is presumably in a position to do something about it.
All the more so since there are reports to come on the demise of both HBOS and Bradford & Bingley. If the law has not been changed by the time they're completed, we'll presumably have to have the same row all over again.
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