Michael Harrison's Outlook: Ratting on a pension promise could become the norm, even for the biggest companies

Regulator enters Stansted dogfight; Cable guys still waiting for the OFT
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The Independent Online

The trades unions have depicted Rentokil as a rat leaving the sinking ship of defined-benefit pension provision. In truth, the company looks more like the Pied Piper, for where Rentokil proposes to go, others will be sorely tempted to follow.

There are a number of other FTSE 100 companies with unaffordable pension promises, the most obvious of which are British Airways and BAE Systems. No amount of tinkering with contribution levels and size of benefits can easily deal with the changing demographics and economics which now make final salary schemes such an albatross around the necks of many employers.

Low interest rates and increased longevity have both made the defined pension promise more expensive to honour, a trend only partially mitigated by the rise in equity markets. Moreover, a big pension deficit has become a regulatory brake on corporate freedom for some companies which can be released only if it is paid down quickly.

Against this background, it would be remarkable if more large companies other than Rentokil weren't think of biting the bullet too and closing their schemes, not just to new members but existing ones. The National Association of Pension Funds reckons there are scores of companies weighing up just such a move and, in a survey last month, it discovered that a quarter of respondents were thinking of shutting final salary schemes to new members or halting accruals to existing members.

Admittedly, this is a grey area in law and the unions are already threatening to reach for the lawyers to prevent the dam bursting altogether. In some schemes, the trustees might be able to exact a punitively high price for allowing a company to rat on its pension pledge. In other companies, the promise of a final salary pension may be deemed to be a contractual right which an employer is not free to renege on.

But the trend is clear. In a few short years the defined benefit pension has become the exception rather than the norm and in a few more years it could begin to resemble gold dust. Those who have one should cherish it while it lasts. For everyone else, the money purchase pension and the prospect of penury in old age looms ever larger.

Regulator enters Stansted dogfight

Michael O'Leary, the chief executive of Ryanair, has stopped talking to Mike Clasper, his opposite number at BAA, other than to despatch the odd expletive-strewn insult in his direction. The reason for his fury is the "obscene" sums Mr Clasper wants to spend building a second runway at Stansted, which is Ryanair's main base. Even though BAA has slimmed down its cost estimate from an initial £4bn to less than £2bn, at least for the first phase, Mr O'Leary still reckons this amounts to gold-plating of Taj Mahal proportions and is damned if he is going to foot the bill for such profligacy. Stansted's second biggest user, the other low-cost carrier easyJet, thinks much the same but has couched its objections in more diplomatic language.

The airports regulator, the Civil Aviation Authority, had wanted the two sides to enter "constructive engagement" to agree on the level of landing charges necessary to finance the new runway. With any hope of this now out of the window it has fallen on the CAA to act as honest broker and set out how it thinks the new runway could be funded.

Even though Stansted's landing charges are not due to be re-set until 2008, the regulatory wheels grind mighty slow and yesterday the CAA produced its first thoughts on the subject. The regulator has rightly ruled out allowing BAA to finance the runway by levying higher charges on airlines using its other south-east airports. This was BAA's preferred option until it got a foretaste of the fight it would have on its hands with the likes of British Airways and Virgin Atlantic, who are already paying through the nose at Heathrow for Terminal 5.

Instead, Stansted should continue to be self-financing, raising the necessary funds for a new runway on a stand-alone basis. For this to happen, charges will have to rise substantially, potentially putting the economic model of the low-cost airlines which dominate Stansted at risk.

The Government says it wants the runway built by 2011-12. BAA's latest estimate for the first phase of the project, which would lift capacity to 50 million passengers a year, is 2013. The CAA suggests that BAA might be able to fine tune the exact timing of when to open the runway by ratcheting up its prices and seeing what happens to airline demand.

But the fact is the CAA has begun from the wrong premise for the simply reason that Stansted is the wrong place to build another runway. This is hardly the regulator's fault. Its job is to encourage investment in new facilities in order to satisfy anticipated demand, not to decide where new runways should be built - that is a political decision made by the government of the day.

Everyone knows that were it left to the market to decide, then Heathrow would get a third runway before a second one is built at Stansted. Heathrow is already bursting to capacity and, unlike the low-cost carriers at Stansted who seem intent on fighting BAA all the way, its occupants would be only too willing to finance a new capacity. Moreover, the environmental obstacles to building a third runway at Heathrow may not be as insuperable as they first appeared when Tony Blair came down in favour of the politically expedient option of Stansted in the countdown to the last election.

As it is, Heathrow will be left with the second best option of introducing mixed-mode use of its two runways at Heathrow - a plan which threatens just as big an environmental revolt as a third runway - while a potential white elephant gets built in the Essex countryside. There is still time for an outbreak of common sense.

Cable guys still waiting for the OFT

The eyes of the media world may be on NTL's planned takeover of Virgin Mobile. But the deal which is a necessary precursor to that marriage - NTL's own merger with the rival cable operator Telewest - has yet to gain regulatory approval.

The baton was passed back from Brussels to the UK's Office of Fair Trading more than two months ago, since when there has been radio silence. The 40-day deadline within which the OFT tries to reach a decision came and went last week, prompting all sorts of market rumours. Has the decision to restructure the deal as a takeover of NTL by Telewest, rather than the other way around, thrown a spanner in the works? Has the BSkyB/EasyNet merger given the OFT fresh food for thought? Or has a politician for some Machiavellian reason stuck his oar in as Stephen Byers bizarrely did by interrupting the merger of NTL and CWC?

None of these explanations looks terribly plausible, which leaves only good old-fashioned bureaucratic sloth on the part of the OFT. The organisation makes an unlikely Santa but the least it could do is clear the deal and allow the competition lawyers to knock off early for Christmas.