Jeremy Warner's Outlook: Lots of questions, very few answers from the Government's long-awaited Energy Review

Still banking on financial stability; Thanks Mr Myners, but goodbye
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The Independent Online

Well there's a surprise. Nuclear power is back on the agenda. The wording of yesterday's Energy Review could hardly have been less ambiguous. Nuclear is to continue to play a key part in Britain's energy needs. Yet though the Government is long on the rhetoric, it is still desperately short on the practicalities.

Beyond the promise to streamline the planning procedures, there is no convincing set of policy initiatives suggested here that would ensure the replacement of the present generation of ageing nuclear reactors with new ones. Instead, the Government seems blithely to assume that the market will somehow provide. One thing which is absolutely certain when it comes to nuclear is that it will not.

Nowhere in the world has a nuclear solution to energy needs ever been generated by market forces alone. Somewhere along the line there is always government intervention, either through subsidy or, as has occurred in Finland more recently, through market subvention.

There are many examples of new nuclear build being privately financed, but I am unable to find a single case of it which is not underpinned by long-term contracts which in effect guarantee the price and rate of return. As things stand, the British system for trading electricity is not set up to allow for such long-term planning.

Nuclear might stand a better chance if there were a proper cost assigned to the climate change caused by fossil fuel sources of supply. Great play is made about the dangers and costs associated with nuclear waste disposal and storage, but, even today, the same high standards fail to be applied to the waste generated by the burning of fossil fuels, where the effects are arguably much more serious.

The emissions trading system is proving pathetically inadequate and certainly comes nowhere near allowing nuclear the level playing field it needs with fossil fuels. There's to be a nuclear White Paper later this year. Unless these issues are then addressed, the policy makers might as well not bother.

Still banking on financial stability

There is a particular genre of newspaper headline which respectable journalists are taught from a young age never to use and it goes something like this. "Tens of thousands of women and children could die if..." Something very similar is said to have been the splash in the Daily Express on a slow news day many years ago. The intention is to shock and alarm, yet the story is based on an entirely disingenuous premise - a quite unlikely event.

This headline should always be borne in mind when reading the Bank of England's Financial Stability Report. The latest issue, published today, is more fulsome than usual in identifying, listing and appraising the various risks it sees to the British financial system.

The last thing I want to do is criticise this exercise as alarmist nonsense, for it is obviously important that regulators form a view as to where the main risks and vulnerabilities lie so that they might be better avoided. To ignore these risks - whether they be global imbalances or rising levels of debt - is to sink into a dangerous complacency, which is when things start to get really worrying.

The Bank may in any case be right to think that vulnerabilities are on the rise, for this is what generally occurs at this stage of the economic cycle. As the good times roll, investors and lenders grow ever more oblivious to risk, and, in a process which investment bankers sometimes call "reaching for yield", engage in ever more dangerous investment and lending strategies in order to achieve their desired rates of return. After prolonged periods of easy money, such as the one we have just been through, the risks are particularly acute.

Even so, the growing robustness of the financial system is in truth a much more remarkable phenomenon than its long list of vulnerabilities. The causes of this new stability are many and varied - not least the macroeconomic stability which the Bank of England and other central bankers have managed to achieve through the timely use of monetary policy.

However it has been achieved, the financial system is hugely better equipped to deal with stresses, strains and shocks than it used to be. In the past 10 years, it has weathered the emerging markets crisis, the boom and bust of the technology bubble, 9/11, Sars, the Iraq war, soaring oil and commodity prices, Enron and much else besides. Time was when just one of these events might very well have poleaxed the world economy and caused the financial system to leave the tracks.

Not so today. That's not to say that these events have not inflicted short-term pain. They have, but despite this there has been no banking crisis to speak of and beyond a short and shallow recession in the US and Europe, there was no significant economic damage either.

Of course, it is just when you start to think the world has been cured of all past ills that they tend to all come flooding back. Yet perhaps naively, I'm still a believer in human progress. Financial stability, like medical science, is one of those arenas where we have seen a dramatic improvement in recent years. Long may it last.

Thanks Mr Myners, but goodbye

It was Paul Myners' last day as chairman of Marks & Spencer yesterday. He could hardly be bowing out on a more upbeat note. As he told the annual meeting, things continue to go swimmingly with the recovery still on track after an 8.2 per cent rise in like-for-like sales in the first quarter.

Mr Myners is leaving not because he's reached retirement age - he's only 58 - or because he's fed up with the job, but because other non-executives have required it. Given the chance, some of them would have chucked him out a year ago for being "too close" to the chief executive, Stuart Rose, but he was given a stay of execution as part of a messy compromise which sees Lord Burns stepping up to the plate as of yesterday to replace him.

Mr Myners was always only "interim chairman" and it was therefore understood the post would be only temporary. But he's never made any secret of wanting to make it more permanent. Having achieved such a sustained recovery in the company's share price and performance, some might even think he deserved it.

That it was not to be can only be explained by a personality clash between Mr Myners and the then senior independent director, Kevin Lomax. The two loathe each other and, unfortunately for Mr Myners, it was Mr Lomax who got the knife in first.

These things happen all the time in business, but the point about this particular falling out is that it was passed off as a serious issue of corporate governance principle. Mr Myners and Mr Rose, it was said, were joined at the hip and Mr Myners could therefore not be relied upon to act as a reliable counterweight to the power of the chief executive. It is precisely this sort of corporate governance claptrap which is killing off the publicly quoted sector and driving growing numbers of the best executive and non-executive talent into private equity.

Mr Myners may or may not be good at chairing board meetings, but his instincts about value while at M&S were plainly correct, and in that respect shareholders owe him a huge debt of gratitude. When Philip Green returned for his second bite at the M&S cherry, Mr Myners moved quickly to restore credibility to the company by clearing out the old guard and bringing in Stuart Rose. He then resisted calls from the City and the financial press to cave in to Mr Green's bear hug and eventually saw the retailing buccaneer off. Big mistake, many said at the time. He should have taken the money.

Had he done so, it would have amounted to the biggest steal in British corporate history, enriching Mr Green beyond the dreams of avarice and robbing pensioners and other long-term savers of one of the undoubted jewels of the UK retail industry. The decision to tell Mr Green to go stick it has been more than justified by the subsequent rise in the share price. Mr Myners has found his reward in being asked to stand down, which should at least amuse Mr Green, if no one else.

j.warner@independent.co.uk

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