Jeremy Warner's Outlook: Mixing politics and mergers is dangerous, but sometimes it's hard to keep them out

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The Independent Online

Thus it is that Lakshmi Mittal finds himself depicted as some kind of wicked Indian Svengali intent only on sucking the life blood out of what's left of Europe's steel industry by bidding for that shining example of European industrial prowess, Arcelor.

He must be stopped at all costs, an increasingly belligerent coterie of Continental politicians scream, never mind the fact there appears to be no justification whatsoever for such a frustration under the mergers policy which they themselves have agreed to.

This allows takeovers to be blocked only if they harm competition. In Mr Mittal's case, the overlap is negligible, so it's hard to see how there can be any competition issues to answer. One of the quid pro quos demanded by Europe's politicians for free competition between member states is a countervailing tidal wave of harmonising regulation, to ensure that everyone plays by the same rules.

Most of this is completely pointless in that it just adds an extra, complicating layer to already perfectly adequate national regulation, but it sure does have the effect of deterring all but the most determined of competition.

Mr Mittal seems none the less prepared to take the risk of Europe's oppressively onerous labour and industrial protections to enter the field. Rather than condemning him, Europe should be welcoming him with open arms, for the future of steel making lies not with the old industrial dinosaurs of Europe, but with the faster moving, low-cost reptiles of the developing world.

Whichever way you look it, Arcelor is about the past, not the future. Its decline, which is inevitable in today's globalised economy, is best managed within a global steel enterprise such as Mittal than alone. Mr Mittal may have to improve the terms a bit, but he offers Arcelor shareholders the best hope they've got of salvaging something from an industry whose centre of power is fast shifting towards the blast furnaces of the developing world.

Having made the case for Mittal, I'm now going to perform a 180-degree somersault and argue the exact opposite for Gazprom in its apparent interest in bidding for Centrica. Many of the same points would seem to apply. Gazprom has no interests to speak of in Britain, so there is no competition case to answer, a point of view which the Department of Trade and Industry seemed to confirm by suggesting in comments to The Independent that it was powerless to intervene.

Yet there was plainly some confusion in the lines of communication for the same department told the Financial Times that Gazprom faced "robust scrutiny" if it bid. The confusion is explained by the fact that though there is plainly no competition case to answer, there may be an issue of national security to address.

Centrica is only a retailer of what is largely other people's bought in gas. It doesn't even own the pipelines down which the gas is supplied.

Yet it does lay claim to about 60 per cent of the total retail market, and once owned by Gazprom, it would undoubtedly become little more than a conduit for Gazprom's boundless reserves of Russian supplies. To make so much of the British market dependent on Russian gas would be potentially quite dangerous, as Gazprom's action in tripling the price of its supplies to Ukraine demonstrates. In an era of declining military might, Russia's burgeoning reserves of oil and gas are its new nuclear arsenal.

On the other hand, to deny Gazprom would have undesirable repercussions too. BP and others are big investors in Russia. Any lack of reciprocity would undoubtedly damage their interests there, as well as strain Anglo-Russian relations at a diplomatic level. However much you might hope to keep politics out of commerce, the two are bound to mix. The Department of Trade and Industry will be just praying that Gazprom doesn't bid, for this is a decision it would happily leave to an independent competition regulator if it could. The Russian bear is unlikely to go quietly if he's turned away. Yet the prospect of him sitting at the high table isn't exactly an alluring one either.

Years of plenty are over for retirees

It's still some months off, but April 6th is A day, the day on which the Government's new "simplified" pensions regime comes into force. The vast bulk of these changes are both welcome and uncontentious, yet there are some which despite the fact that it is now far too late to do anything about them, are for some a growing source of concern as the implementation date approaches.

Chief of these, to judge by my mailbag, is the £1.5m lifetime limit. This innovation, which prevents you claiming tax relief on savings into a pension once the pension pot has reached a value including investment gains of £1.5m, has got some positively foaming at the mouth with indignation. Judges have managed to gain an exemption. Highly paid civil servants would also seem to be largely immune. But the rest of us are stuck with it, whether we like it or not.

Admittedly, comparatively few people are ever likely to be caught by this stipulation. For most of us, just the chance of it would be a fine thing. Yet in nominal terms, the numbers are already quite large. As ever in cases like this, the Treasury seems almost deliberatively to have belittled the problem. Far more are likely to be caught than the Chancellor admits. Factor in death benefits and the numbers are likely to be even bigger. As earnings rise, more and more people will start knocking up against the ceiling.

Another pensions scandal? At the risk of losing some readers, I have to confess to having little sympathy. The tax break on pensions is already quite unfairly slanted in favour of higher earners, with contributions allowable for offset against the top marginal rate of taxation. In effect, for every 6p saved from net income, the Exchequer contributes 4p to the pension pot of the higher earner. For lower paid workers, the tax break is far less beneficial.

Other changes to be implemented on A day make pensions saving more attractive still to higher earners, so much so that you wonder whether the Chancellor has fully thought through their implications for the public finances.

From 6 April, you will be able to invest all your earnings into a pension up to an annual limit of £215,000, get the full tax relief, and on retirement take 25 per cent of it back as a tax-free lump sum. In such circumstances it seems only reasonable that there should be a ceiling on the amount saved beyond which the tax relief won't apply. For the vast majority of people, the trade off is still a beneficial one.

Once this is explained, the righteous indignation tends to fall away, and the complainants tend instead to start feeling grateful for the fact that they are high earners in the first place.

Yet the real source of complaint, and here I do have some sympathy, is not so much with the limit as the fact that it buys you so little.

With low interest rates and rising longevity, annuity rates have more than halved over the past 10 years. Where once the lifetime limit would have bought a pension large enough to satisfy even the most spendthrift of retirees, today it's worth an annual income of "just" £60,000 to £70,000. OK, so for most people this is still a lot of money, but it's hardly off the scale, and just to set it in context, after tax it would barely keep you in a half way decent nursing home.

The years of plenty in pensions are well and truly over, unless you happen to work in the public sector, of course.

j.warner@independent.co.uk

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