Jeremy Warner's Outlook: Interest rate cuts may be coming, but despite the consumer credit numbers, not quite yet

Arcadia: whose money is it anyway?; Cameron's pro-business agenda
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The Independent Online

Will the Bank of England's Monetary Policy Committee be tempted into a new year's cut in interest rates at next week's meeting? I may be wrong, but I doubt that yesterday's news of a halving in the volume of additional credit card lending between October and November will be sufficient to do the trick.

This certainly tells us why the high street is having such a torrid time, but it is not entirely clear that a further cut would reverse the trend, even if such an effect were thought desirable. One of the reasons why the growth in consumer credit is falling is because many borrowers have reached credit limits and banks won't lend them more. Mindful of rising bad debt experience, lenders have embarked on an old-fashioned credit squeeze, which means less money for spending.

On the other hand, the housing market seems already to be responding to the quarter-point cut in rates announced last summer. All the evidence is that house prices are rebounding. This is just what the Bank of England didn't want.

Having apparently successfully engineered a soft landing in the housing market, the last thing policymakers want now is another house price boom. It could hardly be thought a great outcome if the effect of further rate cuts was to put a rocket under house prices again while doing little to stimulate consumption. What's more, with rising energy, transport and utility prices, record City bonuses and a weak pound to boot, there are still plenty of inflationary pressures in the economy to worry about.

The MPC will want further evidence of how the present wage round is going before daring to cut further. This is obviously not great news for the high street, but as Next demonstrated yesterday, and Marks & Spencer is likely to underline next week, it may not be quite as bad as it seems.

Arcadia: whose money is it anyway?

Picture the scene. There's Philip Green spread out on the sun-lounger at the Sandy Lane hotel in Barbados, the warm sun on his face, a gentle breeze blowing in from the palm-fringed beach before him, a pina colada in hand and a £1.2bn Arcadia dividend cheque tucked into the back of his cozzie.

Back in cold, gloomy old Britain his staff are working their fingers to the bone trying to rescue his business from some of the harshest retail conditions in living memory. As if things were not already bad enough, now they have been told they will have to work longer and contribute more if they want to be paid the pension in retirement promised to them.

The contrast is certainly an embarrassing one for Mr Green, but it is not really the scandal of Victorian-style exploitation it might seem. Mr Green has mortgaged his company to a massive degree by paying himself a £1.2bn dividend, but on present evidence, he doesn't appear to have put it in any great financial danger. His bankers would not have allowed him to do so had that been the case. There are also plenty of examples of more aggressive leveragein private-equity owned retail - Debenhams for one.

If the pension fund were in deficit, it might be a different matter, possibly requiring the prior approval for the dividend payment of the new pensions regulator. But according to Mr Green, there is no such deficit. What's more, the company is now contributing £7m a year to the fund, or about 11 per cent of active members' salaries. This compares with a 10-year pensions holiday under previous ownership. Mr Green also claims to have greatly improved the fund's investment performance since he's been in charge.

If all that were not enough to satisfy you that there's no monkey business going on here, says Mr Green, just look at the number of FTSE 100 companies which have also been making members pay more and work longer to help plug deficits, while at the same time engaging in huge dividend payments and buy-back programmes.

Whether you like it or not, this is just the way the system works. To the victor the spoils. Is it fair for the division to be quite so one-sided? Couldn't Mr Green have devoted some of his riches to better funding of the pension pot? Perhaps so, but that's a moral, not a commercial or regulatory issue.

Cameron's pro-business agenda

Much gnashing of teeth among some of our larger companies over David Cameron's new year message in which he said the Conservatives should not just stand up for big business, but stand up to big business when it is in the interests of Britain and the world.

Mr Cameron's intention is to position the Tories firmly in the political centre ground, but in trying to be all things to all men, is he not in danger of introducing an overtly anti-business agenda into his rhetoric? Not even New Labour has suggested there might occasionally be something bad about big business. Is not Mr Cameron going too far by moving the traditional party of business into NGO territory?

Actually, no, and if Mr Cameron is as good as his word, his statement is very much to be welcomed. One of the criticisms of New Labour policy on business is that it has been too corporatist in its approach. Ministers have been only too willing to cave in to vested business interest, and even on occasions deliberately to set policy to suit particular companies. I'm not suggesting corruption in this regard, though I wouldn't altogether rule it out, but rather a starstruck obsession with the can-do attributes of big business.

This is most obviously seen in the Government's attempts to partner business and business leaders in its various endeavours - all one, big happy family pulling together. Except, of course, that business is not a united lobby, but a snake pit of viciously competing interests. Allowing any one of them to pull the strings of government is not pro-business at all; it's just darn right naive. There is a world of a difference between legitimate lobbying and creeping sectional influence.

The tone was set before Labour even came to power when Tony Blair promised British Telecom that when elected he would put the company on the same regulatory footing as cable if it wired up every school and hospital in the land to the super highway. A more risible pact with entrenched monopoly is hard to imagine, yet Mr Blair was only too happy to offer it. You scratch my back and I'll scratch yours, he seemed to be saying to every big company in the land.

Never mind that you cannot trust a politician to keep his end of the bargain. To his intense annoyance, Sir Iain Vallance, then chairman of BT, was later hit along with everyone else by the windfall profits tax on utilities, yet the question he should have been asking himself was why on earth Labour found it necessary to bribe him with favours to get schools and hospitals wired up in the first place. Isn't this what telecoms companies are meant to do?

All that said, the situation was even worse in Mrs Thatcher's day, when favoured business leaders were routinely able to influence and mould public policy to their advantage. Pro-business policy should not be confused with cronyism. Most large companies are benign organisations which serve their communities, employees and country extraordinarily well. Yet Mr Cameron is right to say that when their interests conflict with other public-policy objectives, they should be stood up to.

But don't take his word for it. Look at the evidence. Until George W came along, the tradition in the US was to cut companies that became too big for their boots down to size, this on the grounds that once businesses achieve hegemony they stifle innovation, competition, wealth creation and employment opportunity alike.

Large companies are on the whole about past business triumphs. To protect and entrench them, to give them special favours or allow them undue influence, which seems to be the purpose of industrial policy in France, is nothing to do with being pro-business. To the contrary, it is only to condemn economic activity and wealth creation to decline.

j.warner@independent.co.uk

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