Jeremy Warner's Outlook: Mandelson wades into Airbus/Boeing battle

Wm Morrison; Child trust funds
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The Independent Online

Jaw, jaw is better than war, war, they say. And who better to talk the talk in an effort to prevent transatlantic hostilities breaking out over aircraft subsidies than the silver-tongued Peter Mandelson, Europe's new Trade Commissioner? Whether he can ultimately get Brussels and Washington to walk the walk is another matter.

Jaw, jaw is better than war, war, they say. And who better to talk the talk in an effort to prevent transatlantic hostilities breaking out over aircraft subsidies than the silver-tongued Peter Mandelson, Europe's new Trade Commissioner? Whether he can ultimately get Brussels and Washington to walk the walk is another matter.

It was a piece of naked electioneering when President George Bush carted the EU off to the World Trade Organisation last autumn in protest at the huge dollops of taxpayers' cash given to the Airbus programme. But just because he's now safely back in the White House doesn't mean he's about to relax his position. Brussels responded to America's opening shot within 12 hours with its own complaint against subsidies directed at Boeing. Europe is equally reluctant to give ground.

Even so, the two sides have now agreed to sit down and try to negotiate an end to subsidies within three months. If they can manage it, then the World Trade Organisation won't have to fire the starting gun for all-out war.

Mr Mandelson can be relied upon to use that special relationship Britain supposedly enjoys with the US for all it is worth to help cement a deal. If the UK can support a deeply unpopular US war in Iraq then the least the Americans can do in return is negotiate a truce with the UK and its fellow partners in Airbus.

The basis for a deal is clear. Airbus subsidy, or refundable launch aid as Europe prefers to call it, was dreamed up in the days when the Americans had a virtual monopoly over airliner production and state hand-outs were the only way of turning Europe's new entrant into a viable competitor.

Those days are long gone. Airbus now has its hands on the joystick with a bigger share of the world market than Boeing, no matter whether you measure it in orders or deliveries. It also has a big, fat monopoly in the making in the shape of the A380 super-jumbo, which is being built with £2.6bn of taxpayers' money and will allow Airbus to corner the market for large aircraft in the way that Boeing so successfully did for a quarter of a century with the 747.

But bringing about an end to subsidies on both sides when Boeing receives so much non-refundable back-door aid through the likes of Nasa and the Pentagon has proved elusive. Mr Mandelson would garner huge political capital if he pulls off a deal. How much of a bridgehead he can build between Europe and America remains to be seen. As the new kid on the block, Mr Mandelson is confident of success. Old Brussels hands have seen it all before and are sceptical. The Boeing/Airbus stand-off is as intractable a confrontation as the old cold war. The two sides won't easily lay down their arms.

Wm Morrison

Sir Ken Morrison insists that all is still going exactly to plan with the integration of Safeway into his Wm Morrison supermarkets chain, yet that's not what yesterday's trading statement suggests. Like for like sales growth in the six weeks to 9 January was just 0.1 per cent (4 per cent including fuel). Even taking into account the drag on sales growth caused by stores still trading under the old Safeway format - down 8.4 per cent over the same period - that's a distinctly pedestrian performance for what was once thought of as a growth stock.

Conversion of a Safeway store to the Morrison format continues to have an immediate and highly positive impact on sales. The only trouble is that it cannabalises the sales of existing Morrison stores. The nearly 50 Safeway stores the OFT forced Morrison to sell as a condition of the takeover are also having a negative effect, with the new owners discounting deeply to attract custom. Worse, growth in core Morrison stores seems to be running out of steam too.

Sir Ken Morrison is an engaging character and a brilliant entrepreneur, but he bit off more than he could chew in Safeway, and although I remain optimistic that eventually it will all come good, there's little doubt he has botched the immediate integration. By putting all the Safeway stores on to Morrison pricing before the new distribution system was ready or the conversions achieved, he only succeeded in trouncing his own sales at enormous cost to margin. Sir Ken says the conversions will be complete by this time next year, which will be an enormous relief to all, for as things stand the old Safeway stores exist in a no man's land of almost terminal decline. The sooner he completes, the better.

Even then, the jury is still very much out on whether Morrison will have created a national chain of the premier league to stand alongside Tesco and the Wal-Mart owned Asda. Or will he instead be confined to the second division with Sainsbury? We can only hope it's the former, for it is no longer healthy to have Tesco consolidating its lead in the way it has been.

Sainsbury's distress in combination with Morrison's distraction have all been grist to the mill at Tesco, which issues its Christmas trading statement next Tuesday. When Sir Terry Leahy, Tesco's chief executive, said that Tesco now accounts for £1 out of every £8 of retail spending in Britain, he meant it as an indication of how much growth Tesco still has left to pursue. Others saw it the other round as demonstrative of what an all embracing monster Tesco has become. On the evidence of yesterday's figures, Sir Ken hardly looks like the man to stop the Tesco juggernaut, and as for Sainsbury, which reports today, there's no chance at all.

Child trust funds

Gordon Brown thought he had called a press conference to discuss details of his child trust fund initiative. Instead he ended up being grilled on entirely different aspects of children and trust - the breakdown of trust between No 10 and No 11 Downing Street and the consequent childlike behaviour of their inhabitants. It would have been an easy enough mistake to make even if it hadn't been for the coincidence of language, for the child trust fund initiative has already been announced about a billion times. What on earth was the Chancellor doing announcing it all over again?

Well, that, as we know, is New Labour's way - to flog anything vaguely vote-worthy again and again, until it is not just on its knees, but dead, buried and decomposed. No wonder no one wanted to hear about child trust funds yesterday. Even if there hadn't been more explosive subject matter to question the Chancellor about, this was hardly something to get the news editor's pulse racing. Still, the press conference did at least force the Chancellor to say on the record that he does indeed trust the Prime Minister, which was the first time he has said it since the story that he had lost all trust in Mr Blair first broke.

This would have been a difficult enough thing for Mr Brown to say even if he hadn't wanted to discuss something else, but then presumably he knew what he was letting himself in for by appearing before the press yesterday. Against all the high politics the Chancellor must have realised that child trust funds would struggle to get a look in.

Child trust funds are, of course, little more than a political gimmick, but as gimmicks go they are not as bad an idea is sometimes made out in the Tory press. Quite a lot of savings institutions have decided the sums are so small that it's not worth offering the product, but an awful lot will be doing so, and I know of few parents who think the whole thing a thoroughly worthless nonsense.

Even if stuck into equities, £250 is unlikely to grow into any more than £1,000 over the 18 years of the fund, which is hardly enough to pay for a decent holiday let alone the child's top-up fees at university. Yet even £1,000 is better than a poke in the eye, and it is reasonable to assume that significant numbers of parents will use the fund as an extra avenue for saving on their children's behalf. Is it a good use of taxpayers' money? But of course it isn't.

Child trust funds are just another way of bribing the taxpayer with his own money. Yet this is arguably true of a great deal of government spending. Against the vast array of government grants, benefits and credits that are available, child trust funds fall into the category of relatively inoffensive.

jeremy.warner@independent.co.uk

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