Jeremy Warner's Outlook: Decent legacy left at Pru, despite the bloomers

ONS's statistical fog
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Poor old Jonathan Bloomer. You don't need to feel too sorry for the CEO of any big, FTSE 100 company, all of whom live and die by the sword and get handsomely rewarded for both the living and the dying, but Mr Bloomer must have begun to believe he'd survived the maelstrom of calls for his head that followed Prudential's surprise £1bn rights issue last November.

Since then, Mr Bloomer has partially redeemed himself with a decent set of figures and a better explanation of what he plans to do with the money. Yet it plainly wasn't enough. All of a sudden, he's been dragged off in the dead of the night and summarily executed. Such are the perils of today's boardroom. There have been suggestions in the City for a few weeks now that Mr Bloomer was to be axed in favour of Mark Tucker, but it is in the way of these things that the incumbent rarely sees it coming. Mr Bloomer had only just got back from a four-day conference in Hong Kong of his top 120 executives in which plans for the future were breathlessly rehearsed when he was hauled off to the gallows.

To make matters worse, the man being brought in to do Mr Bloomer's job, Mark Tucker, is a former Prudential lifer and longstanding pretender to the throne. Having been the brains behind the big Prudential success story of recent years - the company's expansion into Asia - Mr Tucker flounced out a couple of years back when Mr Bloomer made clear to him the hot seat would not be vacated any time soon. He's back much sooner than even he could have imagined after a brief sabbatical at HBOS as finance director.

Just to add insult to injury, the stock market cheered the change with a 5 per cent rise in the share price. Mr Bloomer's sacking, it would seem, is the best thing that's happened for investors in years.

So where did it all go wrong? Mr Bloomer's reign was characterised by a series of high-profile confusions in strategy and execution which though none of them caused serious injury, nevertheless suggested an unsureness of touch and a certain lack of judgement. First off, he unwisely tried to bulldoze through an executive remuneration scheme which even if the Pru hadn't been one of the UK's largest stock market investors would have looked ludicrously undemanding in the targets it set to hit the jackpot. He then tried to acquire American General in the US, which he was forced to drop, much to the relief of the City, when fortuitously he was outbid by someone else.

On top of all this came the persistent refrain that the dividend wouldn't be cut, despite the meltdown in the life assurance sector which followed the post-bubble bear market. Perhaps inevitably, Mr Bloomer was forced to eat his words. Egg was the next message to get scrambled. Up for sale one minute, it was off the market the next, with Mr Bloomer once again insisting that the Pru didn't need the capital. Shortly afterwards he seemed to admit that it did when he launched a rights issue. This he justified on the grounds that the company needed money to expand in the UK, a savings market he had previously forsaken as no longer worth the candle in favour of the Far East. Confused? Who wouldn't be?

From the start, Mr Bloomer struggled to win over the City. Described rudely by one shareholder as a "dapper little accountant", Mr Bloomer, though quite cerebral, was neither dynamic nor charismatic and fast became the butt of schoolboyish jokes about his name: Bloomer by name, bloomer by nature. This may have been cruel, but like most playground humour, there was more than an element of truth in it. He seemed to have a habit of slipping on banana skins. It should be no surprise that Sir David Clementi, the chairman, took the view that the board couldn't afford to wait for the next one.

Yet beneath the headlines, Mr Bloomer has actually done a creditable job. As he himself points out, he has completely re-engineered the business; he's seen it through one of the bleakest periods in the history of the life assurance industry. Perhaps most important of all, he's proved an unequalled balance sheet manager, leaving his successor with a cushion of capital strength that provides the best possible support for future growth. To the victor the spoils, for it will be Mr Tucker, strengthened in experience by his brief sojourn at HBOS, who now takes the credit.

Small wonder, though, that Sir David made his move. Mr Tucker is generally regarded in the City as one of the brightest up and coming stars in the insurance sector and as good a catch as the Pru could have hoped for. His arrival will almost certainly put other noses out of joint. Mark Wood, head of the Pru's UK operation, is thought unlikely to stay now that he has no chance of the top job, while it seems equally unlikely Mr Tucker will want to keep the finance director, Philip Broadley, once he's got his feet under the table.

Sir David insists the strategy won't be changed, but that, too, may become a victim of Mr Tucker's arrival. He'll have witnessed first hand the success of HBOS's bank assurance model. As a standalone life assurer, it is not clear that the Pru can achieve anything like the same results in the UK, where too often it finds itself having to buy market share. But whatever he decides to do, he's lucky enough to be inheriting a well- ordered ship. That's rarely the case when shareholder mutiny has forced the previous skipper to walk the plank.

ONS's statistical fog

Further to the piece in Outlook yesterday arguing that Britain's "savings gap" is not as bad as it seems, my thanks to Malcolm Barr, UK economist at JP Morgan Chase, for pointing out that the published savings ratio of 5.8 per cent for the final quarter of last year in the national accounts, on which the comment was based, is an actually quite misleading figure.

This is because it is compiled simply by deducting the amount spent on consumption from disposable income and assuming the difference is saved. The calculation depends crucially on what is included under consumption. Controversially, spending on home improvements, such as loft conversions or kitchen extensions, is not counted as consumption, but as investment, or saving. Count that back in, and Britons are in fact saving nothing at all.

Indeed, the spending of households exceeds its income by some margin. Of course, a reasonable case can be made for arguing that investment in home improvement is a form of savings, though it is remarkable how much of what is done in the name of improvement actually ends up devaluing the price of the property. One man's home improvement is another's monstrosity. Even so, it is hard to see why the purchase of, for instance, a car, which will presumably last some years, should count as consumption, while the purchase of a conservatory should be thought of as investment.

The distinction is mirrored in the debate over the public finances as to what constitutes "current" expenditure and what counts as investment. When the Office for National Statistics recently reclassified spending on road maintenance from current to investment spending, it was accused of cooking the books to suit the Chancellor.

In the last Budget, Mr Brown announced that he would meet by a margin of £6bn his own "golden rule", which demands a balanced budget for public spending across the economic cycle. Add the road spending fiddle back in and the margin is even narrower. Add back in the interest on Network Rail debt, which in another piece of creative accounting the Government classified as private rather than public borrowing, and there's no margin left at all. The Chancellor would, in fact, be heading for a breach of his rule.

These may seem like arcane matters, and in any case, provided everything is transparent, what does it matter? Actually it matters a lot, because the impression given by the statistics, or at least the spin that is put on them, is that everything is perfectly fine on the ranch, both for the public finances and the wider economy. In fact, the position is less benign than it is painted. Both the public and household sectors are spending at levels well above their income. That may spell trouble for the long-term health of the economy. Excuse the cliche, but there are lies ...