If you want to roll in bonuses - pay more tax

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The Independent Online
Labour's energetic environment spokesman, Frank Dobson, is constantly working himself into a frenzy on all kinds of things, but when it comes to the pay of water bosses he turns almost apoplectic. Yesterday was no exception, as he revealed his latest "research" showing water executives swimming in a pounds 20m pay bonanza. "The privatised water bosses are shameless in their greed," thundered a Labour press release. But 20 pages and a lot of suitably outrageous statistics later, Mr Dobson was no nearer to saying what he, or indeed Labour as a whole, would do to curb boardroom excess.

In fact, this document did not advance a single suggestion or policy initiative, despite an election being, at most, months away. Mr Dobson also had little to say about the failings of the Greenbury code - which itself seems to have had virtually no impact on the upwards march of top rates of pay. One of the code's few obvious advances is to make top pay more transparent, providing Mr Dobson and others with the ammunition they need. Yet it's already clear that you cannot shame executives into paying themselves less.

Labour's one definite policy for the utilities - a windfall profits tax - would raise revenue, but it would have no direct impact on pay. If Labour is serious about curbing boardroom excess, it faces difficult choices. Shareholder pressure is never going to provide a complete answer when those running the investment institutions are so highly paid themselves. Some kind of statutory control on pay, perhaps with the involvement of regulators, would also be a non-starter given Labour's passionate embrace of free market economics.

Which leaves higher taxes for higher earners as the only realistic alternative. If utility bosses want to roll around in cash and bonus shares, they should pay more tax, it's as simple as that. It may not raise much for the public purse (increasing the top rate of tax to 60 per cent for those earning more thanpounds 100,000 would only bring in an extra pounds 1bn, and things tail off sharply if the income threshold is higher), but it might correct the problem.

Can we expect such an obvious solution to become Labour policy? Er...well, we in "New Labour" don't want to damage the aspirational middle classes, you understand, nor do we want to penalise genuine entrepreneurial success with new high-band tax rates for the super rich. Until Mr Dobson can come up with some decent proposals, his comments carry no more weight than the rantings of the local pub bore.

Linking those cables could shake up Sky

When it comes to consolidation for the fledgling cable industry, the question is not so much whether as when. We have seen the first stirrings, in the form of Telewest's acquisition of SBC CableComms last year, and the auction (long delayed) of Videotron's UK holdings, which should be decided in the next few weeks, if not days.

But the big one is yet to come - the merger of the first and second companies in the market, Telewest and Nynex CableComms. It is really an open secret that a merger has been under discussion for some months, slowed down by the drawn out marriage vows of Nynex pere in the US with Bell Atlantic, and the prickly personality of Alan Michels, the outgoing Telewest chief.

There is now only one obstacle. It involves Telewest's parent companies, US West and TCI International. Both are keen to maintain their presence in the UK cable market and each wants to find a way of engineering a merger without losing the ability to consolidate their shareholdings in the parent company accounts.

Does all this consolidation make sense? Probably. At the start, the only way to encourage the building of expensive cable networks (likely to be worth pounds 10bn when completed at the end of the decade) was to have lots and lots of players - US telephone companies and European utility giants among them. Now, the real challenge is to develop efficient operations and a better marketing strategy. Both goals would be served by consolidation.

Cable, once it is in the ground, is about billing systems, technical support, marketing and product. Having bigger companies helps spread the operating costs around, as the water and electricity companies have already begun to prove. Even better for the prospects of a competitive economy, big cable operators might be able to afford to create or buy programming to compete with Rupert Murdoch's near-monopoly, his pay-TV giant, BSkyB.

In any case, consolidation of this industry would not be anti-competitive because, under the cable franchise system, there is no choice of operator. Your address dictates your supplier. Efficient and robust cable companies might actually compete more effectively with the main rivals - BT for telephony and Sky for pay-TV - and that can only be good for the customer.

City treads carefully towards floated hotels

Operating with clockwork efficiency, Dieter Bock is not just meeting the target dates for Lonrho's dismemberment but beating them by a handsome margin. At this rate, Tiny Rowland's disparate empire will have been neatly packaged up and sold off by November and he will have more than accomplished the job he took on three years ago in very different circumstances.

He is right to be pressing ahead with such urgency. The approach of the general election is bound to take the edge off the market's appetite for new equity and the buoyancy of the hotel industry cannot last for ever. As it is, the market is treating the company's plans with no more enthusiasm than it has already shown this year for Hanson's urge to demerge.

Breaking up is meant to create value for shareholders as companies bow to the market's demand for "focus". Unfortunately, the evidence so far is that the end of the conglomerate is actually accelerating the City's distrust of these companies.

The 21 per cent decline in Lonrho's share price this year to 171p is a harsh assessment of the company's progress to date and yesterday's uptick was a pretty grudging nod of approval in the light of analysts' estimates of a break-up value of perhaps 226p. The estimated proceeds of the sale of the hotels will more than wipe out what advisers have called the pounds 500m hole in Lonrho's balance sheet and turn it from a heavy cash drain into something rather more enticing to investors. So why the uncertainty?

The flotation is well-timed and gives investors exposure to the sort of pure hotel play that vanished when Granada acquired Forte earlier in the year. With an equal split between the UK and US markets, both of which are booming at the moment, a good price is in prospect. The problem lies not with Lonrho itself but with Mr Bock's 18 per cent stake, which he has the right to sell to Anglo-American for 180p. Mr Bock should confirm on the record that he has no intention of exercising his put option which has come to act like a ceiling on the share price.

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