Jeremy Warner's Outlook: Now there's a thing. Just three months after floating, PartyGaming enters a losing streak

ScottishPower in boardroom clearout; Look out as Germany joins flat raters; MasterCard gets the OFT treatment
Click to follow
The Independent Online

On the Richter scale of profit warnings, this barely registers a tremor looked at objectively, but for a company as controversial as this one, there is no room for disappointments. Investors were prepared to overlook the questionable legality of PartyGaming's trade in return for its supposedly stellar growth prospects. These haven't entirely vanished, but they are plainly not quite as good as it said on the tin, and it's becoming much more costly to acquire them to boot.

According to the chief executive, Richard Segal, the likely fall-off in yields was apparent from the prospectus. As the group expands outside its traditional market of the US, new players become harder to win, they tend to be more transitory, and they don't spend as much. A delay in televising the world poker series didn't help the numbers either. Even so, the founding shareholders plainly got their timing spot on in bailing out when they did.

Despite yesterday's setback, PartyGaming still wins its place in the FTSE 100, where it will bizarrely assume the position of Britain's 66th largest company by market capitalisation, or roughly on a par with Scottish & Newcastle. Hey ho.

ScottishPower in boardroom clearout

Ian Russell, ScottishPower's chief executive, feels the pain of David Nish and Charles Berry, the two fellow directors he unceremoniously dumped yesterday. Unfortunately the place is no longer big enough to support so many layers of management now that PacifiCorp is being flogged off, reducing the company's income by 40 per cent.

Even so, the boardroom clearout plainly came as a bolt out of the blue for Mr Berry who only a fortnight ago was merrily organising his business diary for next month. It will have come as an even bigger disappointment to Mr Nish who only switched from being finance director to his new role in charge of the company's UK transmission and distribution networks in May after helping mastermind the sale of PacifiCorp to Warren Buffett. Did he know he was restructuring himself out of a job?

According to Mr Russell, it became apparent that the two men were surplus to requirements only when the board subsequently sat down and determined that it had to cut its cloth to accommodate its shrunken size. It is hard, however, to avoid the conclusion that they are paying the price for Mr Russell's misbegotten purchase of PacifiCorp in the first place. The sale of the business will result in a loss of nearly £1bn to ScottishPower shareholders. The corporate restructuring announced yesterday, involving several hundred more jobs losses lower down the organisation, will claw back £60m of that from next year.

So Mr Russell keeps his head while all those around him lose theirs. Yet for how long? With E.ON hovering, ScottishPower's days as an independent business look numbered. Mr Russell could hold on in some titular post or another, much as Ed Wallis did after E.ON swallowed up Powergen four years ago. But that is not his style.

Look out as Germany joins flat raters

If Germany adopts a flat rate tax system, or at least a "flatter" one than it has at the moment, what will it mean for Britain? Our own Chancellor, Gordon Brown, rejects flat rate taxes out of hand, but if exponents are right in thinking it leads to a more competitive economy, then even he would have to think again.

The Chancellor may be against flat rate taxes, but he is also very much a supporter of tax competition in Europe, or at least he is when it suits him. If Germany moved towards a more simplistic and flatter rate tax system, he'd be hoisted on his own petard.

To date, the flat rate taxers have been confined to offshore havens and a number of the ex-communist countries of Eastern Europe. No developed economy has yet gone down this route.

With less than two weeks to go before the German election and Angela Merkel still riding high in the polls, there's every possibility of that changing. Despite Gerhard Schröder's attempts to paint her as an outright flat taxer, she's not quite that yet. True, she's been campaigning on a simplified and flatter tax regime while her appointment of a fully paid up convert, Professor Paul Kirchhof, as shadow finance minister has encouraged many to believe she might eventually go the whole hog. But at the moment all she's proposing is flatter taxes, not the full monty.

Interestingly, Britain's shadow Chancellor, George Osborne, positioned himself in exactly the same space yesterday by arguing that with growing international competition, the case for flatter, simpler and lower taxes was already unarguable. "I also believe that a flat tax, even with the obvious obstacles, needs serious consideration," he said.

So where's the catch? Flat rate taxes are frequently condemned as unprogressive. In fact the reverse may be true. A recent report by the Adam Smith Institute contended that set at the standard rate of 22 per cent but with a much higher personal allowance of about £12,000, lower income groups would actually benefit more than higher earners. For the super rich, tax is already largely a voluntary affair. By closing loopholes and exemptions, a flat rate tax system might encourage the rich to pay more tax than they do at present.

On the other hand, flat taxes set in the manner just described would scarcely make any difference at all to average and middle income earners, so assuming that the poor are going to vote Labour anyway, there wouldn't obviously be any votes in it for the incumbent Government. What's more, as even the Adam Smith Institute concedes, it would lead to an immediate and substantial fall in the Government's tax take. The economic benefits might correct this over time, but in the short term, the black hole in the public finances would only get bigger.

Still, if Germany opts for flatter taxes, then our own Chancellor has a problem. He's cleverly managed to portray Britain as a low tax economy. The reality is that Britain's tax burden as a proportion of GDP is now as high as Germany's. And while Germany is cutting and simplifying its tax regime, we still seem to be going in the other direction.

MasterCard gets the OFT treatment

So now we know. After an investigation lasting more than five years, the Office of Fair Trading has found that MasterCard is ripping off consumers by charging retailers a fee every time one of its credit cards is used.

The OFT has run the numbers and finds that the amount charged far exceeds the cost of providing the payments system. Yet the ultimate test has to be whether prices would be any lower if the charge were reduced or didn't exist. There's no way of knowing for sure, but somehow I doubt it, and in any case, if credit card companies are forced to accept reduced fees from retailers, they will only find ways of charging their cardholders more.

I don't want to defend the credit card industry, which is indeed a bit of a racket. Why else would there be so many credit card companies if it wasn't so profitable? They cover their costs from the interchange fees alone, with the usurious price charged for credit coming on top.

Yet this is a ridiculously long time to reach these findings and they don't even deal with the world as it now exists. The credit card companies changed their fee structures as a pre-emptive move nearly a year ago. The wheels of Whitehall grind exceedingly slow. How long before the OFT reaches judgement on the latest changes?

j.warner@independent.co.uk

Comments