Jeremy Warner's Outlook: DTI is still struggling to justify its existence

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The Independent Online

Both the Tories and the Lib Dems would abolish it, and so too would Gordon Brown, the Chancellor, given half a chance to absorb it into his own expanding empire, the more so as the person in charge, Patricia Hewitt, is a Blairite to her finger tips.

Both the Tories and the Lib Dems would abolish it, and so too would Gordon Brown, the Chancellor, given half a chance to absorb it into his own expanding empire, the more so as the person in charge, Patricia Hewitt, is a Blairite to her finger tips. There's very little reason for the Department of Trade and Industry these days, which is why it keeps on coming up with new reasons to justify its existence. Over the years, there have been so many relaunches, restatements of intent, rebrandings and reinventions, that it's hard to keep track. Many of them amount to little more than a recooking of previous mission statements and initiatives.

Yesterday's "New Industrial Policy to Boost British Business" was, I regret to say, more of the same. Jumping aboard the anti-regulation bandwagon, Ms Hewitt has got her very own "bonfire of red tape" - a commitment to reduce the burden on business arising from DTI regulations by £1bn a year over the life time of the "Five Year Programme". The language evokes images of Stalin's Russia, yet even if that were the intention, the content falls so far short of the ambition of Stalin's Five Year Plans as to be barely worth the paper it is printed on.

There is nothing here to inspire business or in truth make it any easier. Regulatory creep, the main bug bear of business, is impossible to reverse while well intentioned politicians such as Ms Hewitt continue to forge ahead with countervailing nanny state policies to reinforce the rights of workers and generally de-risk our lives from the vicissitudes they would normally be prone to. Ms Hewitt rightly points to the need for a step change in innovation and competitiveness if we are to meet the challenge of the fast growing economies of the Far East and India.

Yet as China and India are fast discovering, innovation and economic advancement are best served through deregulation, not by burdening business with all sorts of new rules and laws. The biggest threat to Britain's new found economic prosperity is not China or India, but the veritable tsunami of social, labour and capital markets regulation which has engulfed us in recent years. It runs wholly counter to the flexibility that Ms Hewitt says she wants to instill in our economy. There are lots of fine words in yesterday's "New Industrial Policy", but as long as the mindset of politicians is that of making business harder, rather than easier, that's all they will ever be - just an inverted pyramid of piffle.

Turner & Newall

The implications of Government proposals for an industry funded pensions protection fund (PPF) grow more alarming by the day. Getting solvent occupation pension funds to bail out insolvent ones was always even in principle a dreadful idea, as it will only act as a further disincentive for employers to provide final-salary pensions, but in practice it is turning out to be far worse.

A devastating new analysis of the options facing the now defunct Turner & Newall pension fund makes it clear beyond doubt that T&N will end up becoming the PPF's first customer, saddling the new compensation scheme at birth with a bill of at least £500m. According to a research note produced for RBC Capital Markets by the independent pension consultant John Ralfe, the alternatives are so unappetising that the trustees of the T&N fund have little option but wait until the PPF is up and running, and then petition for a wind-up.

No detailed explanation of how the PPF is to be financed has yet been given, despite the fact that the Pensions Bill, of which it forms a part, is already at an advanced stage of parliamentary approval. Yet it is already clear a substantial one-off levy will have to be imposed if the monster is to fly at all. This is more especially the case if the new fund is immediately hit by the T&N deficit.

Yesterday trustees of the Turner & Newall pension fund formally rejected the reorganisation plan put forward by the company's US parent, Federal Mogul. They also said they had major concerns over revised proposals from Carl Icahn, the US financier who would end up owning half of Federal Mogul if the reorganisation goes through.

Mr Ralfe's analysis demonstrates that the situation the fund's 37,000 members find themselves in is truly dire. In the event of a wind-up, the fund's 20,400 existing pensioners about 20 per cent of their pension promise. Yet because the present wind-up arrangements require that the fund finances current pensions before other liabilities, there's much worse in store for the company's 16,000 non pensioners, who would lose about 80 per cent of their benefit.

This situation may not be much improved either by the original reorganisation plan or the revised proposals. There's a risk both that Mr Icahn will not be able to pay even the relatively small annual top-ups he's promising, and that if the fund is allowed to run on as is, all the assets will end up going to fund present pensioners, leaving little or nothing for deferred members.

Under the PPF, on the other hand, existing pensioners would get 100 per cent of their entitlement plus some indexation, while deferred members would get 90 per cent, again with some indexation. It's a bit of no brainer really. Last week Malcolm Wicks, the Government's beleaguered Pensions Minister, opened the floodgates to just such a claim by stating that any fund that winds up after April, when the PPF comes into existence, will qualify for compensation. We can be pretty sure the trustees will find a way of delaying until then.

This is no doubt good politics, as the last thing the Government wants in the run-up to an election is 37,000 angry pensioners camped outside Downing Street. But it is disastrous for the occupation pensions industry as a whole for the compensation fund to start life by being made liable for one of the biggest pensions insolvencies ever. If you were looking for a reason to close your final-salary pension scheme, they don't get much better than this.

mmO 2 manoeuvre

Time to start paying a dividend, time also to get rid of all those pesky small investors. mmO 2 has an awful lot of them, thanks to the fact that it was once a part of British Telecom, the original popular privatisation. Big companies don't on the whole like small investors, not because they are expensive to service - the usual excuse for trying to get rid of them - but because they tend to turn up at annual general meetings and make a nuisance of themselves. With their penchant for asking awkward, unwelcome questions, they are the bane of many a chief executive.

To be fair on mmO 2, it's not trying forcibly to get rid of them, as some companies do by consolidating their share capital to a level that allows them compulsorily to sell out the small holders. Instead, it plans to offer a free dealing service, so as to allow small investors, as the blurb puts it, to "monetarise" their holdings at no cost. Some might regard this as a rather good thing. Yet the intention is clear enough. mmO 2would much rather not have the 875,000 investors with 500 or fewer shares who are currently on the register. Sending them the circulars and annual reports is costly enough. Posting the dividend cheques, now that mmO 2 has finally declared its intention of making such payments, will be more costly still.

Management should beware. Small shareholders may be belligerent, but they also tend to be intensely loyal. In the end, they always do what the board recommends, which is not a bad constituency to have around when the going gets tough. As a general statement of principle, joint stock companies should be open to all investors. To discourage the little guy is further to disengage the stock market from the general mass of the population.

Curiously, the company which now has the most small shareholders in Britain post its acquisition of Abbey National is Banco Santander Central Hispano. Depending on the numbers that sold in the market in the run-up to the bid going through, there could be as many as two million of them. It will be interesting to see what Emilio Botin, Santander's chairman, makes of his new British constituency.

jeremy.warner@independent.co.uk

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