Investors give ammunition for the utilities tax

COMMENT: 'Those investors whose proxy votes crushed the rebellion by small shareholders yesterday may care to reflect that in a small way they have helped make a full-scale assault on their assets that bit more certain'
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Corporate Japan found a simple but effective way some years ago of countering the menace of the yakuza - criminal gangs who disrupted annual shareholder meetings unless they were given large sums of money to stay away. Everyone began holding their agms on the same day. The lesson has not been lost on Britain's privatised utilities, six of whom held their agms yesterday, not presumably to avoid blackmail but to dilute shareholder opposition to their extravagant, new-fangled pay schemes.

As it turns out, they need not have bothered. There was plenty of huff and puff up in Manchester where King Des of United Utilities duly saw his new long-term incentive plan voted down on a show of hands. But not a single institutional shareholder turned up to register opposition, notwithstanding all the advance billing about how the pension funds were frowning at the scheme.

What stuck in the craw of shareholders about the United Utilities' scheme was the way basic pay for the top brass was bumped up even before the incentive plan, which could double salaries, takes effect. The board mouthed soothing words about promising to look again at the details of the scheme. It might also look again at the structure of its remuneration committee, which is made up of four men over 60, three of whom have been on the board since the 1980s and one of whom presumably knows Sir Des from his days at Plessey.

Unfortunately, the damage has almost certainly been done. Labour's industry spokesman turned up in Manchester yesterday to christen a pantomime cat the king of the fat cats.

But more ominously, Gordon Brown, the shadow Chancellor, is limbering up behind with his windfall utilities tax. It is precisely performances such as yesterday's which lend legitimacy to the threatened tax, and transform it from another example of Opposition heavy-handedness to a thumping vote winner.

The bad news for the utilities, if the latest research from Goldman Sachs is anywhere near the mark, is that the windfall tax net is going to stretch much wider than previously thought, and clobber those it catches much harder than expected.

Assuming the tax is weighted to market capitalisation, United Utilities shareholders would be looking at a windfall loss of pounds 176m. The one saving grace is that it would have been even higher had the shares not performed so abysmally since North West Water took over Norweb in January.

The biggest losers would be British Gas, which currently has one or two problems of its own, and BT. But the tax net would be extended to companies hitherto thought to be safe, such as BAA and Associated British Ports, on the grounds that Labour could run into difficulties with m'learned friends if it tried to discriminate between utilities.

Those investors whose proxy votes crushed the rebellion by small shareholders in Manchester yesterday may care to reflect that in a small way they have helped make a full-scale assault on their assets that bit more certain.

Hangovers linger after housing market stirs

It is always hard to know when mortgage lenders make predictions whether they are talking their own books or not. Andrew Longhurst, Lloyds TSB's whizzo mortgage man, reckons the mortgage war is over and rates will be heading back up, even if Nationwide has not yet heard the message.

Mr Longhurst is probably right that the peak has passed, for housing market turnover is edging up again. But it will be a while before all the special offers disappear, simply because lenders have very fat margins on their existing loans and can afford to continue being generous.

One reason for those high margins is depressed deposit rates, a result of the large number of depositors locked in to building societies waiting for their conversion goodies. These will not disappear until after the Halifax becomes a bank next year.

Indeed, remarks by Mr Longhurst's boss, Sir Brian Pitman, about the vital importance of market share for long term survival are enough to put the wind up the rest of the mortgage industry, redoubling efforts to win business at all costs.

As for the rest of the group's results, it was hard to fault earnings per share growth, excluding special factors, of 34 per cent for what could be Sir Brian's penultimate or even his last results presentation as chief executive (depending on how soon after the succession announcement in mid-September he hands over the job.) He has played very few cards wrongly.

Of all the figures in the results, the cost income ratio is likely to attract most attention from competitors, because with the acquisition of the C&G it is heading towards the best in the banking sector.

In the first half it improved to 57.6 per cent compared with 60.6 per cent a year ago. It may well fall further to meet Bank of Scotland, one of the best, in the low fifties, which is not much above some building societies.

Sir Brian has a reply to those who ask how he can continue building profits in a retail banking business where he himself is creating price wars by putting enormous pressure on weaker competitors: it is that he will stay ahead on cutting costs so he can afford to be cheap. Lloyds staff will have to redouble their efforts to win business if they want to keep their jobs.

Ken's boys and girls do not treasure their jobs

Oh dear, oh dear. The boys and girls at the Treasury aren't happy, not even the kids in Kenneth Clarke's office who have been busy inventing new ways to dismantle the welfare state. Morale, we are told, is at rock bottom; lower grade staff feel insecure and poorly led; and the higher echelons seem to believe the outside world holds them in universal low esteem.

This is not, we hasten to add, anything to do with the International Monetary Fund's view of the way the British economy is functioning - worrying though that is.

No, we learn this from another little piece of glasnost taking place within Treasury HQ - the publication of the annual staff attitude survey.

Quite why this should be interpreted as "heartening" by the Treasury's permanent secretary Sir Terry Burns, is a mystery. It is depressing enough trying to piece together the acronym RESPECT which forms the centrepiece of his mission statement.

So it is not hard to imagine what two years of downsizing has done to the workforce. Anyway, the mere act of conducting a staff attitude survey is likely to clobber morale, since it instantly implies something is wrong.

Perhaps the mandarins in Parliament Street should take a leaf out of sunny Ken's book. Faced with an IMF report that tells him he has no room for any further pre-election tax bribes or interest rate cuts, he comes up smiling and describes it as "extremely positive" reading. Now that's the spirit.