Usually the winners in the Budget have it spelt out for them and it is the losers who must dive into the Treasury documents fearing the worst.
The banks were spared that exercise on Wednesday because George Osborne left them in no doubt that they were the ones funding his pre-election gifts, such as the increase in personal tax allowances.
The Chancellor’s increase of the banking levy time after time would result in howls of protest from any other industry, but top financiers know that now is not the time to appeal for clemency. They are suffering from a double hit, because the sector is excluded from taking advantage of the falling rate of corporation tax. A levy on global balance sheets rising to £3.6bn next year and £3.8bn the year after is starting to hurt.
It has proved far more valuable to the Exchequer than Alistair Darling’s banking tax of choice, on bonuses. That raised £2.3bn in the only year it was charged but might have brought in more if institutions had not shifted bonus payments backwards or forwards to dodge that financial year.
Little blunts big pay. A bonus cap imposed from Brussels has been negotiated with the addition of a “role-based” stipend to bankers’ remuneration. At the same time, investors have become exasperated that some institutions have been paying staff more than they pay out in dividends. The defence for big pay has always been that banks must pay top dollar to hang on to the best people, but the correlation between pay and performance is not clear.
It is true that the banking levy, which hits HSBC and Barclays hardest, could weaken their competitiveness on the global stage. It is true that the willingness to continue taxing banks takes the sheen off the Square Mile compared with other financial centres – although it will not deter Spain’s Sabadell from snapping up TSB. But what it might also do is focus lenders more closely on reform. If they have to spend so much on a balance-sheet levy, then surely they can’t afford to distribute top-heavy bonuses any more?
There’s plenty of water still to flow under the bridge
Retirement obviously does not figure in Sir John Parker’s plans, or else the 72-year-old wouldn’t have just popped up as the next chairman of the water group Pennon, owner of South West Water. The boardroom veteran has plenty of experience of utilities, having chaired National Grid, but much of his time on water has been spent on his 46-foot yacht Shimna.
What might have attracted Sir John to this job is that much is going on beneath the surface of the water industry. Liberalisation is on the way, which means reservoir-to-tap, vertically integrated suppliers could be a thing of the past.
The suspicion that water companies, as large local monopolies, have had it too good is supported by their popularity with acquisitive overseas investors. Thames Water counts China and Abu Dhabi among its United Nations of shareholders, while Northumbrian Water is part of the Hong Kong billionaire Li Ka-shing’s empire, and Severn Trent fought off a bid from a consortium of Canadian and Kuwaitis.
The regulator Ofwat has clamped down on prices with a five-year settlement to cut bills. But it is also keen on more competition. While that brings to mind the daft idea of shipping fresh water from one end of the country to the other, in practical terms it means more companies can choose to switch to a single, nationwide supplier from 2017.
The shake-up could see some water companies reshaped. Last year’s Water Act gives permission to withdraw from parts of the retail market, in effect letting one operator contract out billing and customer services to another supplier so it can focus on something more glamorous, like sewage.
Ofwat has also softened its stance on consolidation with a relaxation of the merger regime, which currently means most water deals must undergo an in-depth investigation.
All told, there is plenty for Sir John, who has already chaired five FTSE 100 companies, to get on with. With a market capitalisation of £3.3bn, Pennon is about £800m short of becoming his sixth.
Familiarity breeds respect, but what about independence?
It is good for a chief executive to get on with his chairman, but not too well. I’ve seen some rifts develop; I’ve also seen the old pals’ act in action. So I wasn’t sure what to make this week of Lord Smith of Kelvin’s appointment as chairman of IMI, the FTSE 100 engineer.
The move reunites him with Mark Selway, the Australian chief executive who ran the pump maker Weir for many years when Lord Smith was chairman. They know each other well; they might even have shared a bottle or two from Lord Smith’s South African vineyard.
Corporate governance guidelines suggest that a non-executive director shouldn’t spend more than nine years on a board for fear of losing his or her independent status. But how long before a chairman loses his independence from an executive he must work with so closely?
Lord Smith was chairman of Weir for most of Mr Selway’s eight-year reign. It was a successful period and, but for the oil price slump, Weir would still be powering away today. Lord Smith is no slouch when it comes to top jobs, having chaired the energy provider SSE and run the commission that worked out the devolution of powers to Scotland. So shareholders might see the appointment as the return of the dream team. But they might also ask why IMI couldn’t cast the net a little wider.Reuse content