Outlook: More candy floss for weighed-low enterprise

Weston quits BAE; Beautiful game
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The Independent Online

After a bad week for Labour's "partnership" with business, the Government yesterday moved to re-establish its credentials as the party of business by served up a double helping of "enterprise" initiatives. Patricia Hewitt, the Trade and Industry Secretary, is presumably already well accustomed to be treated like the Chancellor's dog, but was it really necessary for Gordon Brown to upstage publication of the Enterprise Bill by pre-announcing a package of tax measures which will be announced all over again in next month's Budget?

The Treasury says it had no option, since this year's Budget takes place after the end of the tax year, but companies need to know where they stand on these issues before then for tax planning purposes. So why make such a song and dance about it, and why publish the changes on the very day of the Enterprise Bill? It smacks of yet more vacuous spin, and indeed there is not much in either of these initiatives that we didn't already know about.

The three tax changes affecting business were all aired in the Pre-Budget Report last Autumn and are in any case are only worth £350m a year initially. As for the Enterprise Bill, that too doesn't add anything to previously announced plans to boost the Office of Fair Trading's powers and make mergers policy independent of political interference.

Nobody should doubt the Chancellor's desire to do well by business. His admiration for the enterprise culture of America is well known, but the truth of the matter is that these are largely candy floss measures which fail to address the main problem facing Britain's enterprise economy - namely the growing burden of regulation, especially as it concerns the labour force. As in so many areas of public policy, the Government's pro-business agenda is at odds with its social objectives, for business will always do best if the Government simply gets out of its way. But while there are cartels to do battle with, however imaginary, and productivity there for the improving, there's not much chance of that.

Weston quits BAE

It is reassuring to see that the tradition of making way for an older man is still alive and well in the higher echelons of corporate Britain. There is nothing sinister, BAE Systems insists, in John Weston's surprise decision to quit as chief executive at Europe's largest defence equipment combine. It is just that after more than thirty years with the company, he fancies doing something else and reckons that unless he leaves now at the age of fifty, it will be too late for a fresh start.

The same, apparently, does not apply to Michael Turner, who's also been with the company for donkey's years and at the age of 53 finds the challenge of selling arms to the world continues to fill him with a warm glow each morning when he awakens. Nor does it apply to Sir Dick Evans, the chairman, whose reign will be lengthened as a result of the change of chief executive. It was due to come to an end this year, when Sir Dick reached the normal retirement age of 60. He'll now be staying on longer.

Well, it's a nice try but it is hardly surprising that the City was less than convinced by the explanation. On a few things, however, investors can be reassured. There's no black hole, there's no row between Sir Dick and Mr Weston, who remain great friends, nor is it anything to do with the BAE employee caught selling secrets to the Russians. Rather it seems to be a case of the board deciding that Mr Turner is a better man for the job.

The City has never had any sort of a problem with Mr Weston, who is generally respected as an accomplished finance and operations man. His execution of the merger with GEC's defence electronics business was flawless, and he is well liked in the investment community. In the sales department, however, Mr Weston may have been somewhat lacking. Sir Dick, his predecessor as chief executive, was a hard act to follow as a super-salesman, and in the end, Mr Turner is probably more of a natural successor at the coal face of persuading the Saudis, the Pentagon and others to sign on the dotted line.

Mr Turner has also won plaudits internally for sorting out BAE's interest in the Airbus consortium. Airbus's appetite for capital shows no sign of abating, but at least BAE doesn't now have to cough up when the threatened feeding frenzy for the super jumbo begins.

The Europeans were furious when BAe merged with the defence electronics arm of GEC to create an integrated defence equipment goliath capable of competing with the giants of America. They wanted a pan-European, not a fortress Britain, approach to defence equipment consolidation. Mr Turner's appointment may ensure that when BAE is ready for its next big deal, it will be the US rather than Europe that the company turns to.

Beautiful game

Is the beautiful game about to turn ugly? Yesterday's half-year figures from Manchester United made good reading but the detail will set alarm bells ringing. The club's wage bill soared 40 per cent, which even by City standards looks like excess bordering on the suicidal. Wages are expected to account for 50 per cent of sales in the second half as more and more players follow the manager's lead by jumping on the gravy train.

United can cope with this kind of pay spiral only because its unique brand name enables it to secure major sponsorship deals, such as its £303m pact with Nike. But lower down the league ladder the pips must be starting to squeak. The current spending binge is being fuelled by the new television rights contract which started this season. Worth a total of £1.6bn to the Premiership, it is pumping money into clubs like never before but it is draining straight though them into the players' pockets. It is what Alan Sugar once charmingly called the "prune juice effect".

The current deal runs until 2004, but it is hard to see it as anything other than the high water mark of the football bubble. BSkyB paid £1.1bn for the domestic rights to the Premiership last time. With ITV Digital staggering around like someone who has just been tackled by Roy Keane, Sky may face little competition when the contract comes up for renewal. We already know that TV rights to the second tier, Football League games are virtually worthless. The Premiership too will struggle to achieve anything like the same sum.

The clubs' main bargaining chip is that the their games provide the "content" which drive Sky's subscriptions. If Sky plays hard ball, the Premiership clubs may set up their own channel and hope the government forces Sky to carry it. But it is hard to say they have the whip hand. Football share prices tell the story. When Sky bid for Manchester United the club was valued at £624m. That valuation jumped over the £1bn mark in early 2000 when the dot.com frenzy was at its peak and everyone was desperate for "content" to shove across their brand new distribution infrastructures. Now the world's most famous football club is worth only £300m.

With the TV bonanza over, a painful new reality looms. Sadly, a Premiership club will probably have to go bust before the penny drops and players begin to accept that they may perhaps not be worth quite so much as they thought they were. It's hard to see anyone feeling sorry for them.

j.warner@independent.co.uk

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