Jeremy Warner's Outlook: You don't need to be a protectionist to think Gazprom's acquisition of Centrica a bad idea

Paradox of thrift as Britain saves again; Giving up the USP at JD Wetherspoon
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The Independent Online

The Russians are coming: do we care? When confined to the likes of Roman Abramovich and his acquisition of Chelsea Football Club, perhaps not very much. But when it's Gazprom taking a tilt at our largest gas distributor, Centrica, or Rosneft, the Russian state-owned oil goliath, tapping into the capital markets via the good services of the London Stock Exchange, it's time to sit up and take notice.

Both these companies are controlled by the Kremlin and are frequently used by President Vladimir Putin, quite unashamedly when cause arises, as an arm of Russian foreign policy. Alan Johnson, the Secretary of State for Trade and Industry, seemed to give the green light to a Gazprom bid for Centrica this week when he told Aleksander Medvedev, the deputy chief executive of Gazprom, that Britain wouldn't hide behind "the stagnant waters of protectionism".

Nor indeed would it be right for him to do so. Britain has prospered by having open borders and encouraging inward investment. But Gazprom is different, and not just because it is state-controlled. It is also the world's largest supplier of gas, and whatever the safeguards put in place, you could pretty much kiss goodbye to competition in the UK gas supply market if the already dominant distributor is exclusively supplied by the world's biggest producer.

It is one thing for Russia through Gazprom to increase its supply of gas to the UK market. With dwindling North Sea supplies, we must now buy wherever the price it cheapest. But it is quite another for the supplier also to become the biggest retailer. The opportunity for predatory pricing, eventually making the UK gas market wholly dependent on Russian supplies, is all to obvious.

Whatever Mr Johnson says, there are very significant public policy issues involved here. Of course the Government doesn't want to be seen as protectionist. But it would be more than careless to end up with a situation where there is little or no retail competition left, with Russia able to hold the nation to ransom by threatening to cut off gas supplies, as it did with Ukraine. Ministers may be playing a smart game by relying on competition regulators to obstruct bids which they dare not touch themselves for fear of upsetting overseas interests. It's a high risk game, none the less.

Paradox of thrift as Britain saves again

For evidence that after one of the biggest consumer booms in history, Britain is rediscovering the joys of saving, look no further than yesterday's new business figures from Legal & General. For the first quarter, these were up by 28 per cent in the UK, one of the strongest rates of growth in years. Britons may no longer be consuming, but they are apparently starting to save again.

The reasons for this go beyond the purely cyclical. After the boom and bust of the dot.com bubble, investors turned their backs on equities and went for housing and cash instead. This may have created a separate bubble in the housing market, but it was a perfectly sensible decision after the madness of the great speculation. Ever lower interest rates meant that debt became more affordable, which in turn put a rocket under house prices.

That phenomenon may now largely be over, though there is every reason to believe that as the population as a whole becomes richer, the price of desirable property will continue to inflate. The mentality which led many to think of their house as their pension may none the less now largely be a thing of the past.

In the last three years, the best returns have again been from equities. The FTSE 100 may still be a long way below its turn-of-the-century peak, but its climb has been astronomic since the bottom in March 2003. As for the mid-cap, FTSE 250 index, fuelled by takeover activity, that's long been hitting new records. Yesterday it surged through the 10,000 mark for the first time.

All of a sudden the retail investor has noticed and come flooding back. The propensity of the small investor to sell at the bottom and buy at the top never ceases to amaze or, as a former deputy chairman of Lloyd's of London once remarked, "God would not have made them sheep if he had not meant them to be fleeced".

The tendency was only reinforced by the perverse effect of solvency regulation which forced life assurers and pension funds to dump equities as their prices fell, but now that they have recovered, allows them to buy again. The beneficiaries have been the market professionals and the hedge funds.

Still, though the best of the returns may already be gone, there's good reason to believe the bull market isn't over quite yet, while the long-term case for equities continues to look as attractive as ever. In the long run, no other asset class performs as well.

Another reason for the upsurge in savings may be the more flexible pensions regime introduced this month. This allows lump-sum saving into a pension for the first time up to a maximum of £215,000 a year. Anecdotal evidence is of significant numbers of bonus earners taking advantage of the new rules. Where once City bonuses would largely have been ploughed into London properties, more of them may now be going into pensions.

Yet perhaps the biggest factor is the weight of publicity surrounding Britain's savings gap. You'd have to have been on a different planet not to have noticed it. Adair Turner's pensions report has only reinforced the message though, predictably, there is little evidence of the sort of low-paid people his proposals are aimed at changing their habits. Britain's renewed interest in saving is for the time being solely a middle class phenomenon.

More saving in the economy means more investment. After the conspicuous consumption of recent years, it's just what the Bank of England and the Government wanted. Yet as John Maynard Keynes observed in his General Theory, there is a paradox in thrift. The more people save, the less they spend, thus reducing the overall level of demand and depressing the economy. The situation should only become serious if there is a recession, when the accelerator effect might kick in. The more people save, the less they spend, the less demand there is, the more unemployment grows, the more they save, and so on.

This doesn't seem a likely outcome as things stand, but Britain's perceived need to rebuild its savings may instruct subdued economic growth for some years to come.

Giving up the USP at JD Wetherspoon

JD Wetherspoon was founded on the not exactly ground-breaking idea that there might be something of a market for social drinkers who like their booze cheap but also want a pub with no loud music or TV to get in the way of convivial or otherwise conversation. The formula worked, and JD Wetherspoon grew and grew.

But it wasn't enough. Soon JD Wetherspoon started offering food, and greasy spoon breakfasts to lure the punters in. The cheap booze grew more expensive and the all-you-can-drink-for-a-fiver, or similar cut-price deals, had to be curtailed because of all the tut tutting in high places about binge drinking. By next year, you won't even be able to have a smoke in a Wetherspoon's either.

Still, at least you don't have to endure the drunken roar of the crowd drawn in to watch the footie. That much is sacred, surely. Er ... well ... you know ... it is the World Cup and last time it was held in Europe the company's takings plummeted 6 per cent over the four-week period of the contest as the drinkers took their business to pubs that did have TVs.

"Don't expect Wetherspoon's to be the venue of choice for football fans," says the managing director, John Hutson, but, yes, we are installing a couple of plasma screens in every pub. It will be left up to the manager whether to turn them on or not. And so it is that JD Wetherspoon has turned full circle to become just like everyone else. No wonder the company is struggling to maintain past rates of growth. What's happened to the unique selling proposition?

j.warner@independent.co.uk

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