History is rewritten in only 48 hours

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It is not often that history is rewritten in 48 hours, but the CBI and the Institute of Directors have managed it. On Monday morning, both organisations were supporting the Greenbury proposal to change the tax treatment of executive share options, which had been acted on by the Chancellor at dawn.

By Monday evening, Tim Melville-Ross, director general of the IoD, was feeling bruised around the shins after a furious kicking from some of his members, and was beginning to question the way the change had been implemented by the Chancellor. By yesterday, even the CBI leadership had been humbled by its members, and was heading for a U-turn.

The history, as now rewritten by both organisations, goes like this - we wanted the change and we still think it right. But we had no idea the Chancellor would accept our advice so fast, or implement a blanket change with no help for the lesser-paid middle managers and employees who also have share options. The IoD also spuriously claims Greenbury only meant quoted company share option schemes, not those used by private companies (a lot of its membership).

May we please have some concessions, or at the very least some transitional arrangements to smooth the path for our members? It is they who have to go back to their employees and explain why a report that was meant to curb a few so-called fat cats has cost many much poorer people the price of a new car through lost tax reliefs that are almost irrelevant to really high earners.

In fact, the long-term case for special tax treatment for share option profits, which are no more than another form of earnings like tips, is weak. Why should share ownership be subsidised when the Government has been phasing out mortgage relief? Both should go.

But in the short term, we have a repeat of the Chancellor's bungled reform of gilts taxation for the same reason - inadequate consultation. He owes it to the lower-paid victims to provide a carefully thought-through transitional arrangement to ease the pain, perhaps using a threshold below which capital gains tax will continue to apply for now.

When sustainable means fewer jobs

Unemployment looks ominously near its trough after nearly two reassuring years of decline. Job creation has also fallen off. What's more, there are a million and a quarter fewer people in work now than in 1990.

On the face of it, decisions taken last year to slow the economy have worked. Mr Clarke said yesterday that he had deliberately engineered a slowdown so growth would be sustainable and consistent with low inflation. The Governor of the Bank of England thought last month that we needed even slower growth through another increase in interest rates to be sure about low inflation.

What is alarming about this in the light of yesterday's figures is that sustainable seems to mean that unemployment will at best level off, and perhaps increase. It seems we will not be able to get much below the current unemployment level of 2.3 million claimants.

Investment, like employment, is still lower than it was five years ago. There has been so little investment during the recovery that industry has hit the capacity buffers after a relatively short burst of growth above trend. Despite the huge uncertainty surrounding the manufacturing output data, it was clear last autumn that production was expanding so fast that it brought inflationary dangers. Investment in new capacity had not kept up. That was why base rates rose.

Sustainable, steady growth is preferable to the dramatic gyrations the economy performed in the late 1980s and early 1990s. The charge against the Government is that its policies have not increased the rate of growth - and number of jobs - that can be sustained without increasing inflation. The Chancellor is expected not to raise interest rates for some months now that serious signs of weak growth have emerged. If inflation subsequently rises above the target, as the Governor has warned, the charge will be proven.

Regulation must be made accountable

The Public Accounts Committee seems the most unlikely body to strike at the heart of utility regulation, but strike it has, and with impeccable timing. The debate over regulators - whether they are sufficiently accountable and whether too much power is vested in an individual - has been raging for months and, with the PAC's planned inquiry, may come to a head. The PAC is a far weightier commons committee than any other, since it has the resources of the Comptroller and Auditor General to draw upon, and thus strikes terror into the heart of every bureaucrat.

One issue that urgently needs scrutiny is whether regulation is too much personality-driven. That may be the case, but the alternative American model of regulation by broadly based commissions could make the system slower, cumbersome and less incisive. The Labour Party is almost certain to overhaul the regulatory system should it gain power, but other than some form of profit sharing with customers, it is far from clear what it would put in its stead.

A key question is whether the PAC's investigation should be broadened to include the leaks of sensitive regulatory information which emanate from time to time and which are of growing concern to the Stock Exchange. The PAC insists that there is no link between its look at the regulators and the recent fuss over information on new electricity prices which appeared to leak into the market before they were announced. But any investigation into the system of regulation can scarcely avoid so important an issue, which is basically about responsibility to other bodies.

The Committee has been brave enough to say it will tread ground which the Government has so far refused to tread, and in particular review the structure of regulation. It should not be afraid to draw up a new blueprint both for the mechanics of regulation and for making it accountable.

Wall Street traffic watching the signals

Wall Street was running up and down like a nervous rabbit last night as nervy traders lost their footing on the wall of worry that bull markets always have to climb. Was yesterday's fall, one of the biggest since 1987, the beginning of a meltdown or a minor hiccup before, as New York's bulls hope, the Dow breaks through 5,000 in the first quarter of next year?

Their confusion is understandable. Wall Street is in the grip of a bewildering array of conflicting signals. Alan Greenspan's confidence about the economy, which undermined hopes for further interest rate cuts, is at odds with the gloomy trading statements to have come out of America's giant technology stocks, falls in which have been largely responsible for dragging the market down.

The reality is that traders have been looking for an excuse to sell the market for some months now. For the moment, let's believe Greenspan's promise of a soft landing.

Edited by Peter Rodgers