Jeremy Warner's Outlook: A once proud name, Peninsular & Oriental Steam Navigation, disappears into the sunset

New nuclear build: who pays?; The final nail for private pensions?
Click to follow
The Independent Online

So there's an end to the house that Lord Sterling built. With the acquisition of P&O by Dubai Ports World - the price is so full it's hard to see anyone mounting a higher counter-bid - the last piece of this once mighty business empire passes into foreign hands.

P&O Nedlloyd, the container shipping operation, has fallen to its Danish rival, Moeller-Maersk, the P&O cruises business was taken over by Micky Arison's Carnival, while Lord Sterling's original property assets, including London's Earls Court and Olympia exhibition halls, were forced from him by City investors determined to ferment a break-up some while back.

Lord Sterling himself has already retired and gone, but although in the end an excellent price has been achieved for all the various bits and pieces that once made up the Peninsular & Oriental Steam Navigation Company, the enforced carve-up and passage of his legacy into largely foreign ownership must still rankle.

As his successor at P&O, Sir John Parker, remarked yesterday, you can talk about how the stock market doesn't appreciate the proper value of your business until you are blue in the face; it rarely does any good, and when eventually someone does come along that recognises the true value of the company's key position in international trade, the City just takes the money and runs.

P&O will live on as a trade name in cruises and cross-Channel ferries, but the promise it once held of becoming a world powerhouse in trade and travel has been squandered by short sighted City shareholders with their "focus, consolidate and sell" investment mantras. They've made their turn, but it's a sad day for P&O and all those who still associate the name with Britain's commercial and cultural heritage.

New nuclear build: who pays?

It only seems like yesterday that we had the last energy review, but when you've been in government as long as this one, what goes round comes round and if it means performing "a vaulting, 180-degree full on U-turn", as David Miliband, the Local Government minister, so eloquently described the Government's retreat on Council tax reform, then so be it.

The last energy review, which was as recently as 2003, dismissed the nuclear option as "unattractive", and backed renewables instead as the most desirable way of filling the gap in the nation's energy supply. Now the Prime Minister has announced a fresh review that will specifically address the issue of how to facilitate the development of new nuclear power stations.

The Government seems finally to have accepted that the country cannot live on renewables and gas alone; some other source of low carbon electricity has to be found to avoid an energy crisis 10 to 20 years from now that will make the present one look a flea bite by comparison.

As things stand, the only obvious solution to our insatiable appetite for more energy is nuclear. Malcolm Wicks, the Energy minister, made it plain as a pikestaff yesterday that the Treasury wouldn't be writing the cheques, so who is going to pay? Why, the consumer, of course, through higher energy bills. Even this Government, thankfully, cannot yet order the private sector to invest, so to persuade the City to finance the new generators it must offer incentives.

This is relatively easily achieved by interfering in the market and imposing a nuclear obligation. The blueprint for this already exists in the form of the Renewables Obligation, which requires suppliers to source a growing proportion of their electricity from sustainable sources - wind, sun, wave and biomass.

The effect is to lift the price of renewable supply to a level where the market finds it worthwhile to invest. The same principle could be applied to nuclear, which despite recent advances in nuclear technology and efficiently, is still considered more high risk and costly to produce than alternatives. Heavy decommissioning costs also need to be provided for, as do the costs of a deep repository for the disposal of nuclear waste.

None the less, none of these obstacles is insurmountable. Even lengthy planning procedures, which blight all big construction projects, let along nuclear, could be fast tracked by building new nuclear stations on the sites of old ones. Yet it all carries a cost, and whatever the nuclear lobby tells you, it is likely to be a great deal higher than rival forms of energy production. Even with a nuclear obligation, the Government may find itself having to underwrite the debt. Of course there is a far less costly solution - simply use less energy.

The final nail for private pensions?

Everyone else has had a go at Turner before seeing the detail of his analysis and recommendations, so for what it is worth, and despite being broadly sympathetic to the outline proposals, here's my ha'penny's worth of criticisms too. One of the Pensions Commission's key recommendations is the establishment of a national pensions savings plan, already and irritatingly dubbed the Britsaver.

The idea is that individuals would be auto-enrolled into the plan unless they specifically decide to opt out so as to pursue alternative pension arrangements. It's virtually compulsion, but not quite, as you won't have to do it if you take a conscious decision not to. The amounts being talked about are relatively small - perhaps 3 per cent of salary matched by the employer.

The extra costs for business have already been condemned as an outrage which will make British industry less competitive, but this to my mind is not the major objection. The extra direct cost even to employers that offer no pensions arrangements at present would quite quickly be absorbed, as it amounts to less than one-year's increase in average earnings. With contributions collected through the pay-as-you-earn system, the extra administrative costs would also be minimal.

No, the main drawbacks are twofold - first that it would undermine existing, more generous pension provision by employers, and second that it would damage consumption by reducing disposable incomes, particularly among lower income earners, many of whom shouldn't arguably be saving at all, since they can ill afford it.

Yet it is the first of these objections which is potentially the more serious. The existence of a bare minimum, default national savings scheme will make employers even less inclined to provide decent pension arrangements than they are already. Why go to the hassle and the cost if there's a semi-compulsory government scheme to fall back on?

This would apply particularly to occupational pension schemes, which already find themselves being priced out of the market, but it would have equal relevance to defined contribution arrangements. Companies that offer such plans on average contribute about 5 per cent of salary. With the introduction of the Britsaver at just 3 per cent, this average would eventually be homogenised down to the lower figure. The process might take time, and many employers would continue to offer superior pension arrangements as a way of attracting and retaining employee talent, but happen it will, particularly at the lower, unskilled end of the labour market.

Even Tesco, which at present offers relatively generous occupational pensions to employees who stay for more than a year, would struggle to maintain such arrangements in a market where leading competitors are paying just 3 per cent of salary into savings plans where the employee assumes all the investment risk.

Lord Turner might succeed in winning a little more money for the great unwashed who at present don't save anything at all, but only by undermining what remains of our voluntary, private sector pension arrangements. These have already been battered virtually to death with the removal of the tax credit on dividends and the imposition of a plethora of new regulations and levies. The introduction of the Britsaver might be the final straw. That doesn't look like much of a solution to me.

j.warner@independent.co.uk

Comments