Jeremy Warner's Outlook: Unwinding the US trade deficit is the policy challenge of our time, but nobody can say how

Pensions: but what does Brown think? Qinetiq: not really a scandal; P&O: Singaporians retire hurt
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After Britain's record trade deficit comes not just the mother but the great grand daddy of all trade deficits - that of the US. Quite how it's going to be unwound is the most important issue in global economics today. Yet for the moment it just keeps growing, and despite the increasingly dire predictions of many leading economists as to the consequences if the problem is left unaddressed, seemingly nothing will stop it.

Short-term US interest rates have been rising for more than a year now, yet so far they have done little to dampen the appetite of American consumers for foreign, and particularly Chinese, goods. The long-term solution to this problem is a relatively straightforward one.

Americans must start consuming less and exporting more, while for Asia, the reverse must apply; Asia must surrender some of her export led growth and develop a bit of internal consumption. As Asian wealth grows, this is indeed what ought to happen over the medium to long term. But getting from here to there is going to require some exceptionally fancy footwork by policymakers if we are to avoid a nasty pile up along the way.

Pensions: but what does Brown think?

The parameters of the pensions debate are becoming clearer as the doors close for submissions to the Government's pensions White Paper. There are essentially two approaches to the idea of compulsory saving. One, favoured by the Association of British Insurers, envisages a continuation of the present stakeholder arrangements, with each individual having their own personal account into which the contributions are made and pension pot accumulated.

The other, favoured by the National Association of Pension Funds, favours a pooled, or collective approach to investment, with the money vested in a series of "super trusts", which would manage and administer the money on employees behalf. This is also broadly the approach favoured by Frank Field, the Labour MP, and his Pensions Reform Group, only his scheme would be state administered but with the investment choices made on a pooled basis by an independent panel of wisemen.

Then there is the National Pensions Savings Scheme proposed by Adair Turner's Pension Commission. This is much more similar to the ABI's solution than that of Mr Field, in that Lord Turner too envisages auto-enrolment into individual savings accounts, with the employee given a limited number of model investment options. Where Lord Turner parts company with the insurers is that he'd have the scheme administered by the state, whereas the insurers naturally want to administer the accounts themselves.

There's also an argument building up around charges. Lord Turner insists the NPSS could be run for as little as a 0.3 per cent annual cost, including administrative and investment management costs. The ABI claims Lord Turner is being wildly optimistic. It reckons its members are unlikely to be able to do it for any less than double the Pensions Commission estimate, although I gather that at least one insurer has put in its own submission with a much lower number in mind.

The National Association of Pension Funds reckons the pooled approach will deliver a much lower cost too. With hundreds, possibly thousands, of different employers in each trust, it believes the annual charge would work out at 0.5 per cent or less.

And so the battle of ideas and charges rages on. The more interesting question, perhaps, is whether any of this will survive a change of political leader. Gordon Brown, the leader in waiting, has already made known his unhappiness with key elements of the Turner proposals. These objections relate mainly to Lord Turner's recommendations for reform of the state pension, an area of public policy which the Chancellor believes lay outside Lord Turner's terms of reference. What to do with the state pension, with its implications for the public finances, is his prerogative.

Yet whatever form the auto-enrolled pension scheme takes, that too will have very considerable implications for tax and spend. Eight million people save nothing at all for a pension as things stand, and though even the Treasury cannot think that a good thing, if even only a half of them started putting 6 per cent of income away for retirement, it would, because of the tax break, slice a chunk off the Chancellor's incoming tax revenues.

The debate has scarcely yet begun.

Qinetiq: not really a scandal

I hold no torch for John Reid and the Labour Government, but an awful lot of nonsense has been written and said about the stock market flotation of Qinetiq, the former Ministry of Defence research department. This was Labour's first stock market flotation, so it was bound to be keenly watched.

While in opposition, today's ministers used routinely to lambast the then Tory Government for "giving away" state assets to its friends in the City, a process which would also enrich the "fat cat" directors of these concerns beyond the dreams of avarice. Is Labour not now guilty of the same thing?

The case for the prosecution lies in the fact that in a partial privatisation back in 2003, the Government sold a 34 per cent stake in Qinetiq to the US private equity firm, Carlyle, for just £42m.

Today that stake is worth 10 times as much. Labour thus stands accused of selling to the Americans on the cheap, nevermind the fact that the flotation price of 200p a share struck yesterday might also seem to undervalue the company. The shares jumped to a 9 per cent premium in first dealings. Just as embarrassing still, the chairman, Sir John Chisholm, has ended up with performance shares worth more than £26m. Who knows how testing these performance targets were?

Scandalous or what? I can't answer for Sir John, but the Carlyle sale wasn't scandalous at all. Carlyle's £42m was presumably the best deal that could be secured at the time. In any case, the amount Carlyle paid for its equity understates the true cost, as quite a bit of debt was injected by the Government into the company as part of the deal.

What's more, Qinetiq would not be worth £1.3bn today without Carlyle's interest. Carlyle's influence in Washington has secured the company a sizeable US business, which it otherwise wouldn't have had. If the Government had sold it all to Carlyle back in 2002, it would be a different matter. But it retained 66 per cent, thereby taking the lion's share of the upside generated by Carlyle's involvement.

Will the National Audit Office be chastising the Government for this asset sale? Somehow I doubt it.

P&O: Singaporians retire hurt

PSA, the Singapore port operator, has retired hurt from the battle for control of P&O, leaving the way clear for a rival state backed bid from Dubai. P&O is the last remaining container port operator of any size that it was possible to buy. Its exposure to fast growing Asian markets makes it doubly valuable.

Even so, DP World is paying through the nose. Pay back will take many years. Singapore is almost certainly right to throw in the towel. At least it has the consolation of knowing it has forced Dubai to offer a great deal more than it intended.

Could the Singapore investment vehicle that owns the ports authority turn its attention to some other British based infrastructure company? BAA perhaps? Don't bank on it. Its withdrawal from the fight for P&O demonstrates that there's a limit to the amounts even these deep pocketed state investors are prepared to pay. Some of the City valuations being put on BAA since Grupo Ferrovial said it was interested in bidding may be just wishful thinking.

j.warner@independent.co.uk

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