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Outlook: Brown wheels out his weapons of mass persuasion

Granada/Carlton; Baker for Boots

Michael Harrison
Thursday 01 May 2003 00:00 BST
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A little bit like Saddam's weapons of mass destruction, Gordon Brown is certain we will discover that his growth forecasts were real all along even though he cannot quite produce the evidence. The Chancellor's performance yesterday in front of the Commons Treasury Select Committee was robust in style but still not persuasive in substance. There is a wide gulf between the 3-3.5 per cent growth Mr Brown is forecasting for next year and the consensus figure of 2.3 per cent shared by independent forecasters. If they are right and he is wrong, the Chancellor's Budget arithmetic will be shot full of holes and his ambitious public spending plans will suddenly rely on a more borrowing, more taxes or both.

Baroness Thatcher chose her valedictory talk to the Institute of Directors yesterday to highlight the dangers of what she sees as Labour's tax and spend agenda. But you do not have to be a former Conservative premier to take issue with Mr Brown. The Institute for Fiscal Studies, which is as independent and impartial as they come, reckons that on current projections the Chancellor will somehow have to fill a £10bn hole in his finances over the medium term.

Mr Brown told the committee that was because the IFS and other forecasters start with a top line growth forecast and work backwards to calculate the effect on tax receipts. The Treasury, on the other hand, builds its forecasts from the ground up, using Inland Revenue figures which are not available to the rest of us. Unfortunately, the Chancellor did not elaborate on what this data showed and the MPs did not have the gumption to press him for more information.

We therefore have to either trust the Chancellor or weigh the evidence which is publicly available. The latest data swings both ways. The stock market has just recorded its best monthly gain for five and half years, industrial output is recovering and the March retail sales figures were the best on record, as the Chancellor was quick to point out to the committee. On the other hand, the housing market, which has acted as the engine of consumer confidence for the last two years, has now clearly ground to a halt and unemployment has started to creep up.

Furthermore, the economies of the eurozone, notably Germany and France, show every sign of weakening further which may make the bounceback in trade growth factored into Mr Brown's assumptions a little premature.

Above all, the ending of the Iraq war and the fall in oil prices has not decisively cleared away the air of uncertainty hanging over the UK and world economies as the Chancellor had perhaps hoped.

Mr Brown's reply is to wait for the Bank of England's next inflation report in two weeks time, the heavy hint being that its central growth forecast will be a good deal more bullish than in February when Iraq was on the brink of war and oil prices were highly volatile. We do not need to wait that long. The Bank's Monetary Policy Committee meets next week and the market has got it into its head that it will cut rates, which would make it hard to justify an upbeat growth forecast. If Mr Brown is looking for the smoking gun which proves the economy is on the rebound and his growth forecasts are true, then nothing less than a rate rise will suffice.

Granada/Carlton

Is the Charles and Michael Show about to hit the cutting-room floor before it can even get into the schedules? The market shrugged off the Competition Commission's interim assessment yesterday of the Granada- Carlton merger and the remedies it might impose to safeguard competition. But the previews do not look good for Granada's Charles Allen and Carlton's Michael Green.

The two companies had originally hoped that they would be allowed to create a single ITV embracing 90 per cent of the existing network and all but four small franchises without having to make any concessions. They then reluctantly conceded that one of their two airtime sales houses might have to be divested to keep the advertisers happy.

But in its list of hypothetical remedies, the commission offers them the choice of a complete ban on the merger or the divestment of both sales houses coupled with a code or conduct to protect smaller licencees and independent production companies.

A forced disposal of both sales houses would rob Granada and Carlton of more than a third of the cost savings they expect to make. But more seriously, it would undermine the rationale of the deal altogether since it would deprive the combined business of the bulk of its overall revenues. Carlton, in particular, is almost entirely dependent on advertising revenues as opposed to money earned from selling programmes to other broadcasters. If this were to be removed then it would become an unattractive proposition, even for someone as hellbent on consolidating ITV and as eternally optimistic he will get his way as Charles Allen.

Gerry Murphy, who left Carlton to run Kingfisher shortly after the merger was announced last year knowing he would not get star billing in a single ITV was always sceptical that the deal would overcome the regulatory hurdles.

The competition lawyers seem to think Granada and Carlton are on a sticky wicket. And yet if the City thought there was a serious threat to the merger, Carlton's share price ought to have halved yesterday. In fact, its share price and that of Granada barely moved. Perhaps the market is tuned in to the wrong signal.

Baker for Boots

It's been a long wait, so let's hope the guy's worth it. Richard Baker, the Asda man who will be unveiled today as the new chief executive of retail struggler Boots inherits the biggest headache on the high street. If you spot him in one of the stores, likely as not he will be the one at the Nurofen counter.

Mr Baker has certainly made quite a leap, beating off the claims of retail names such as Stuart Rose and Tim Mason, both of whom had been linked with the job. He is also living proof that Boots has gone shopping for "generational change". Still only 40, Mr Baker will be one of the youngest chief executives in the FTSE 100.

He joins a business in a strategic bind with Boots suffering at the hands of the supermarkets on price and recently forced to abandon its costly excursion into higher-value Wellbeing services which ultimately did for the did for Steve Russell, who is still limping along in Boots' Nottingham bunker.

On the plus side Mr Baker has a background in one of Boots' supermarket tormentors and is likely to drive sales much harder. As a former Mars executive he also has experience of brands, a key differentiator for Boots against the big supermarket chains.

On the negative side we know little of his strengths as a strategic thinking. His best course of action may be to adopt a back to the future approach, recognising that, shorn of distractions like Botox and alternative medicines, Boots is a solid brand in a growth market which needs to rediscover some basic retailing skills. Perhaps the biggest issue is how good the Asda guys are when you remove them from the fold. Archie Norman and Allan Leighton were retail hot-shots, but the jury is out on their successors. Paul Mason didn't last long at Matalan and the fear for investors must be that Asda managers are only good at running Asda, where they are backed by the mighty Wal-Mart buying machine.

m.harrison@independent.co.uk

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