Outlook: Brown and the art of looking like the next Prime Minister

Whitehall dogfight; Black days
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The Independent Online

Gordon Brown had better things to do yesterday than suppress a Labour rebellion. While Tony Blair was fighting for his political life over top-up fees, the Chancellor decided it was more important to press the flesh with the world's movers and shakers than twist the arms of a few backbenchers.

As attempts go to assume the mantle of prime minister in waiting, nothing could have been more calculated than the show Mr Brown put on at the QE2 centre in London. While Mr Blair struggled with his little local difficulty, Mr Brown sought to present himself as world statesman.

Bill Gates was there to sprinkle a little star dust on the Chancellor's mini-Davos. Alan Greenspan and the US Treasury Secretary, John Snow, appeared live on video link to add the gravitas. As if that were not enough, there was the Governor of the European Central Bank, a bevy of European finance ministers and enough chief executives of FTSE 100 companies to equal the gross domestic product of a largish developing nation.

Alistair Campbell must have been spinning in his political grave at the way the occupant of Number Ten had been outmanoeuvred by his next door neighbour.

Needless to say, the outcome of Mr Brown's little get-together scarcely lived up to the star-billing but that was not really the point. It was the usual policy-lite mix of publicity stunts and eye-catching but ultimately vacuous "initiatives". The Chancellor's "enterprise week" is not going to turn us into a nation of serial entrepreneurs, much less create another Microsoft, and the thought of giving the Royal family a front-line role in promoting enterprise will have sent shudders through real wealth-creators.

The decision to conduct the day's events according to Chatham House rules gave Number 11 the perfect excuse to exclude the press from the chamber and switch off the sound feed any time the debate got interesting. But that did not prevent the odd note of dissent being heard, including Sir Terry Leahy's lament that business was already up to its waist in taxes and red tape and in danger of being drowned altogether.

Business these days does not recognise national boundaries and while it is not so easy for Tesco to vote with its feet and go elsewhere, there is nothing stopping the likes of GlaxoSmithKline, Vodafone and Diageo, as the Chancellor was reminded by three of his other guests.

Today, it is back-office functions that are being exported, but tomorrow it could be the knowledge-based jobs that create wealth. Industry is not sentimental and that makes labour as mobile as capital if the conditions are better elsewhere.

Mr Brown promises to answer this in a Budget for skills and science. But his biggest challenge is going to be maintaining fiscal discipline in the face of rising public expenditure, and that means some hard choices on taxes and spending. Still, it gets even harder when you are prime minister.

Whitehall dogfight

Was that the sound of a fat lady singing or a dead man walking? In what could prove to be very nearly his last act as Defence Secretary, Geoff Hoon finally confirmed yesterday that the RAF will replace its ageing TrisStar and VC10 refuelling aircraft with a fleet of Airbus A330s.

What is less clear, however, is whether the Ministry of Defence will stick to its original plan of funding the deal through the private finance initiative (PFI) or opt for something less esoteric, like actually buying the aeroplanes.

Choosing between a PFI and a conventional procurement may not be the issue uppermost in Mr Hoon's mind as he waits for Lord Hutton to seal his fate one way or the other. But there is a lot riding on it for Air Tanker, the EADS-led consortium which was duly selected yesterday in preference to the Boeing/BAE consortium.

Boeing self-destructed late last year as the campaign reached the short strokes so EADS, the majority shareholder in Airbus, only had to stay out of trouble to win the contest. Just to make sure it was given the opportunity to break Boeing's monopoly over tanker aircraft, EADS submitted an aggressive (ie rock bottom) bid. But the real value to Airbus of pricing its A330s on the cheap lies in the 27-year contract to service, maintain and crew the aircraft which follows. Then there is the added kicker of being allowed to earn commercial revenues on the side when they are not being flown for the RAF.

In the early days of the PFI the upfront costs were small while the sting was in the tail. But these days the Government is being forced to put an increasing number of PFI projects on to the balance sheet, which reduces its scope for massaging the public finances.

With the latest rollicking from the National Audit Office about cost overruns still ringing in its ears, it would seem that men from the MoD have been told to go away and double check whether a PFI really is the most cost-effective way of financing this contract. There is a recent precedent - last year's £800m Hawk deal, which turned suddenly from a PFI into a conventional purchase faster than a Red Arrow.

It may simply be that the Treasury is intent on forcing EADS to sharpen its pencil even further before proceeding with a PFI. On the other hand, a conventional purchase could look attractive if the MoD can defray some of the cost by eking a few more years out of its TriStars. The ministry is already fudging the in-service date for the A330.

By a delicious irony, the MoD's bête noire, BAE Systems, would emerge rather well from a decision to go down the route of a conventional purchase because it owns 20 per cent of Airbus. Sadly, Mr Hoon may not be around to share the joke.

Black days

Another day, another lawsuit and the Black comedy which has become Hollinger enters a new phase. This time the court action is designed to thwart Conrad Black's attempts to re-write the company's by-laws and thus enable the independent directors to continue with the job of auctioning the assets.

Meanwhile, the rival trade bidders to the Barclay brothers are beginning to flex their muscles. Daily Mail & General Trust, which only keeps the brothers' Business newspaper alive by inserting it for free inside copies of the Mail on Sunday, has decided to tear up the arrangement.

With at least four lawsuits on the go, the Securities and Exchange Commission in possession of its own court order and who knows how many compensation claims in the offing, it is by now obvious that the only parties who are profiting without doubt are the lawyers.

The Barclays may insist that the purchase of Conrad Black's voting rights in Hollinger makes theirs a done deal but nobody else seems to agree and there is every likelihood that the ownership and control of the company will be fought over in the courts for months.

It does not behove rival newspapers to shed crocodile tears over the commercial prospects of their competitors. But it must be clear to all the bidders that the current impasse is doing the Telegraph titles no favours. The Barclays showed guts and flair in by-passing the auction process to deal directly with Lord Black of Crossharbour but the time is surely fast approaching when they will have to talk serious turkey with Hollinger's remaining shareholders if they want to carry off their prize.

m.harrison@independent.co.uk

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