Outlook: Confusion reigns over Government's Tube plans

M & S turnaround; Schroders' howler; CGNU bonuses
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The Independent Online

The cock has now crowed thrice. The first two times that Stephen Byers hinted at a U-turn on the Government's public private partnership for the Tube, it could simply have been the Transport Secretary negotiating in public to get a better price out of the contractors. But there can be no such explanation for his third hint that a climbdown is on the cards, if only because the final, final bids were submitted two weeks ago.

Yesterday's disclosure to a Commons select committee that Mr Byers is looking at a London Underground bond as an alternative to either the PPP or continued government funding of the network serves to muddy the waters still further. On Monday, the acting chairman of the Tube Lines consortium, Brian Staples, said Mr Byers commitment to the PPP was "rock solid". Mr Byers evidence yesterday suggests his support is based on much shakier foundations.

Sadly, it is par for the course. Above ground, Mr Byers has turned what should have been a winning policy – the scrapping of Railtrack – into a public relations disaster. Below ground, his strategy for the Tube is now being handled with the same lack of deftness.

The charitable explanation is that the Government is examining all possible funding options for the Underground to ensure that it obtains best value for the taxpayer and the travelling public. The less charitable one is that policy is once again adrift as ministers struggle to square their political conviction that a PPP is the right way to proceed with the immense public antipathy towards private sector ownership of the transport system.

If the Tube PPP is abandoned then the two preferred consortia will have to write off £65m in bidding expenses. But the cost to the Government's standing in the City will be even greater, given that it is looking to the capital markets to fund more than half its ten-year £67bn rail plan. As for the Tube itself, a transport bond is a perfectly acceptable method of financing. This is the way the New York subway was modernised. Unlike Mr Byers' political fortitude, the Underground's revenues are rock solid, and although, technically, a London Transport bond ought to count towards the public expenditure totals, there are plenty of ways of bending the rules, as the Treasury did with the Channel Tunnel Rail Link.

M & S turnaround

Phew! Saved by the consumer boom. Luc Vandevelde, chairman of Marks & Spencer, gave himself two years to show clear signs of a turnaround, and by the look of yesterday's trading statement, he's home and dry a good few months before the final bell.

The figures are better than any one dared hope for, and although the extraordinary strength of high street spending has given Mr Vandevelde a following wind, he also seems to be delivering an impressively well executed recovery in M&S's fortunes all round.

Underperforming assets have either gone or are in the process of going, details of the promised £2bn repayment of capital will be released next week, and most important of all, there's now clear evidence that attempts to revitalise the stores is working. The decision to bring in George Davies and his Per Uno brand, much questioned at the time, has delivered a powerful boost to customer numbers and a strong rebound in women's wear sales. This time last year, Mr Vandevelde was staring in horror at a 5.5 per cent fall in non food sales over the Christmas trading period. This time around he's achieved a 10.4 per cent increase in like for like sales.

Mr Vandevelde was keen to stress the negatives yesterday. He finds it hard to believe that high street spending can continue to grow at its present rate, and he's hardly alone in that. Already the best performing stock in the FTSE 100 last year, the shares may be running a bit ahead of themselves. There's still plenty of scope for disappointment. Even so, investors can at last be confident that their company once more has a future.

They can also congratulate themselves on not allowing themselves to be bamboozled by the ever active Philip Green into selling out when the company was at its nadir. The same cannot be said of the lily-livered deskmen who ran the former Storehouse. On the rebound, the Monte Carlo based asset stripper (sorry Philip, that should read entrepreneur) bought Bhs from Storehouse instead at what now appears to have been a gross undervalue. He's since watched its value soar. Stock market investors have been able to share in M & S's revival. Good luck to Mr Green, but they were denied that opportunity with Bhs.

Schroders' howler

As "accounting errors" go, the one unveiled yesterday by Schroders, the fund management group, was thankfully not cripplingly large. The chief executive, Michael Dobson, is new to the job and wasn't even on the board at the time the overstatement took place. Nothing to do with Dobo then. As for the finance director, Nick MacAndrew, he was there at the time and candidly admits that it is his responsibility, even though he is not yet able to tell us how it happened. He's going in April, so Mr Dobson can reasonably claim that whatever's past is past, and the company can now begin again with a clean slate.

Even so, it does rather beggar belief that a company whose whole raison d'etre is to look after other people's money and invest it wisely should be so be so apparently incapable when it comes to counting up its own numbers. Remember, this is also an organisation that expects the highest standards of corporate governance and transparent accounting in the the companies it invests in. No client has been disadvantaged by the errors, and the £11m shortfall in fee income hardly adds up to a major scandal, but there's plenty of egg on face none the less.

Schroders seems to run to a different set of rules to those it insists upon elsewhere. The company maintains an archaic dual capital structure which allows the Schroder family to control the company from a minority of the shares, and it seems to care not a fig for generally accepted ABI guidelines on executive pay when it comes to its own affairs. The shares have risen strongly since news of Mr Dobson's appointment and the City has high hopes of a turnaround. There's plainly a lot to do.

CGNU bonuses

More bad news for "with profits" policyholders. CGNU yesterday became the latest big life assurer to cut annual and terminal bonuses. We won't bother with the detail, since that seems designed only to confuse, suffice it to say that the effect is to cut the maturity value of a standard 25 year term policy by about 10 per cent.

Over the months ahead, CGNU will be writing to a whole raft of mortgage endowment policyholders who thought they were in the clear warning that their policies may after all show a shortfall. CGNU feebly points out that it could have been worse, since the stock market has fallen much further over the last two years. Those that thought the whole purpose of with profits saving was to smooth out such ups and downs can go and eat cake.