Jeremy Warner's Outlook: Is it the Chancellor or Lord Turner who is talking fairy tale economics on pensions?

British Airways takes axe to head office; Regional press: yesterday's industry?
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The Independent Online

Was Adair Turner, the chairman of the Pensions Commission, referring to Gordon Brown when he talked about those who indulge in fairy tale economics - in which a fairy godmother makes all difficult choices disappear? The Chancellor has already challenged the affordability of the Pension Commission's recommendations and I doubt that formal publication of the report yesterday - all 460 pages of it - will have changed his mind much.

This is an enormously impressive piece of work which minutely examines almost every aspect of the pensions debate and comes up with what most people would think of as an eminently sensible set of conclusions. Lord Turner has attempted to ensure fairness and equity in all he recommends, and despite the daunting challenges involved and some obvious drawbacks to what he proposes, I think he largely succeeds.

Yet though the McKinsey trained superbrain is careful to present his conclusions as a range of different options which nobody in their right mind would either wholly agree or disagree with - the start, in other words, of a genuine debate - he strays dangerously into political territory in the thrust of much of what he says, and it is easy to see why No 11 would want to seize back control of the reins.

Much of what Turner has to say is so far in the future that it would scarcely seem to matter whether the Government commits to it or not. By the time we get there, even the prime minister-in-waiting will be but a footnote in the history books. In that sense, there is something faintly surreal about Lord Turner's long-term projections on costs and affordability. He has no more idea than the rest of us what the world will look like 45 years from now. By then, much of what he proposes may look completely irrelevant.

Even so, the Turner reforms if implemented would amount to the most important overhaul in welfare provision for the elderly since Beveridge and, to the Chancellor's mind at least, if anyone is going to be remembered for such a profound reform, it will be him, not some unelected intellectual.

Furthermore, some of what Lord Turner recommends may have more immediate consequences for the ballot box, the public finances and the economy. Lord Turner hopes to have the new National Pension Savings Scheme up and running by 2010, which is close enough to the next election to do serious damage to the incumbent Government.

The prospect of having to contribute 5 per cent of salary for a pension in retirement worth just 15 per cent of average earnings is not exactly an attractive one to lower income earners with already squeezed disposable incomes, never mind the extra 3 per cent employers will be compelled to contribute. The full impact of the proposed reforms to the basic and second state pension take longer to kick in, but even here it is easy to see why someone with his eyes set on being prime minister might be concerned.

Lord Turner wants to see the earnings link restored to the basic state pension by 2010 but he is not immediately planning to pay for this by raising the age of entitlement; that comes later. Instead he proposes to take the money saved from already announced plans to equalise the woman's age of entitlement at 65 with that of men and reinvest it back in the pensions system. This is money that would otherwise have been available for tax cuts or spending elsewhere.

No wonder the Chancellor is more inclined to take a Keynsian view of things, irresponsible though it might seem. Look after the short term, the famous economist once said, and the long run will take care of itself. To Lord Turner, that looks like fairy tale economics. To Mr Brown it is just good politics.

British Airways takes axe to head office

The newish chief executive of British Airways lived up to his reputation as "Slasher Walsh" with a vengeance yesterday. Less than two months after taking up the post, Willie Walsh has swung the axe through BA's management ranks with terrifying effect, culling half of its 400 top managers and nearly a third of its 1,300 middle managers. To make the carnage even worse, some of those managers will end up being given the sack, even though Mr Walsh came into the job in October pledging that there would be no compulsory redundancies.

It is hard to recall a more ruthless management purge, of an airline or any other business for that matter, in recent times. It also begs an awkward question: if BA can afford to get rid of 35 per cent of its managers, what on earth were they doing there in the first place? Holding meetings with one another in the ersatz surroundings of BA's Waterside headquarters next to Heathrow, as they walked along the cobbled street or paused at the babbling brook, one suspects.

The management cull also leaves behind an awkward question for Mr Walsh's predecessor, Sir Rod Eddington: if he ran the airline so brilliantly, how come he never got to grips properly with its bloated bureaucracy?

Mr Walsh would not go into details about the kind of management positions which have suddenly become surplus to requirements. But rest assured that if you are the chief assistant to the assistant chief of strategic marketing (UK and Ireland), then your days are numbered.

Since September 2001, BA has pushed through 14,000 job cuts so it beggars belief that even now it has as many people in its head office as Ryanair employs across the entire airline. It is entirely appropriate therefore, that if Mr Walsh is going to flash his blade, then he should begin at the head of the organisation.

The uncertainty caused by his announcement so close to Christmas and its effect on morale should not be underestimated, even if the managers who are going are those the passenger never sees. Nevertheless, when it comes to the equally painful and arguably more difficult task of making big cuts in the body of BA's 45,000-strong workforce, not to mention taking the axe to the company's unaffordable pensions promise, it will not hurt Mr Walsh's case to point out he is leading by example.

Regional press: yesterday's industry?

The previous three generations of Rothermeres will be turning in their graves. The news that Daily Mail & General Trust is hoisting a for sale sign over its regional newspaper interests is quite the most seismic event to have happened in the newspaper industry since Rupert Murdoch's move to Wapping.

An exaggerated claim? Not really, for though the company remains committed to its national newspaper titles, what the proposed sale of Northcliffe Newspapers seems to be saying is that like Mr Murdoch, Associated has begun to see newspapers as yesterday's industry.

Of course the present Viscount Rothermere cannot say that on the prospectus, for to do so would only dilute the £1.5bn the company hopes to get for the titles, yet for a company whose whole history has been built on the successful management of newspapers to admit that the money might be more effectively invested elsewhere - exhibitions, radio, the internet, and business to business publications - says it all.

The threat posed by new media to established forms of classified advertising and local paid for news may not be as big as widely assumed. Yet Daily Mail for one is plainly not prepared to take that bet. To have all your eggs in one basket in such a fast changing media landscape looks to Daily Mail like the wrong long-term approach. The young Lord Rothermere's view is that he either has to get bigger in regionals to survive, or get out of them altogether. Since he's not prepared to pay the valuations demanded, he might as well take advantage of them instead.

Is he already too late? Northcliffe is not nearly as high margin as rivals, so the cost cutting potential alone should be enough to attract plenty of interest from rivals and private equity. Yet the same thinking that instructs Lord Rothermere's decision to sell runs loud and clear throughout the industry these days. This is no longer the sellers' market it was.