Labour's pick and mix approach doesn't work
Friday 06 June 1997
On the one hand ministers display a touchingly naive, almost awe-struck admiration for the "can do" attributes of our more successful businessmen. "Do come in and show us how to do it", they are saying to the open minded of them. "You can be our partners". So in comes David Simon of BP, Martin Taylor of Barclays, and most bizarrely of all, Peter Davis of the Pru. But you cannot keep old Labour in its cage for ever, and every now and again out it comes growling and angry, fulminating against fat cattery and the wicked capitalists.
And so it was yesterday as John Prescott went on the warpath about what was in truth a not particularly shocking rise in Railtrack profits. This is our money, Mr Prescott insisted, it belongs to the tax payer, and even if we no longer own this wretched company, we as sure as hell are going to control it. The distinction Labour makes when its leaders rant and rave in this way is between businesses which are essentially public services and the rest. Privatised utilities bad, everything else good, is what Mr Prescott would say if pushed.
But although this is all good populist stuff, it is actually a false distinction as well as a dangerous one. If the lottery and the public services are to be banned from making money it won't be long before the argument is extended to other businesses with anything approaching a dominant market position, and from there to business more generally. Labour is already planning to hit the utilities hard with its windfall levy, a retrospective and selective tax which in many other parts of the world including the United States would be unconstitutional and therefore illegal. Now it seems to want to stop them making any money at all.
The politician speaks and the regulator delivers. John Swift the rail regulator, yesterday announced that he is going to rewrite Railtrack's performance regime, because he believes that a disproportionate amount of Railtrack's direct government subsidy is going to shareholders.
Meanwhile, over at Ofwat, Ian Byatt has deplored big real rises in dividends saying he cannot see why water shareholders need such a big return. What world does Mr Byatt think City investors inhabit that they should want to put their money into something where the spoils are distributed according to need? The workers Republic of China? Exaggeration perhaps, but the City can expect a lot more where that came from right across the utilities over the months ahead.
Labour is in danger of adopting a pick and mix approach to business - socialism for the utilities, and anything else the masses take a dislike to, and capitalism for the rest. Ultimately this is bad politics and economics, as well as bad in principle, for the company not allowed to make money for itself rarely tries to make savings for its customers either. There are plenty of good businessmen and plenty of bad ones but not because some are saintly and some are evil. Rather it is because some are good at what they do and some are bad at it. The only way anyone is going to find out which is which is by letting the market decide. Unavoidably it tends to do this on the basis of how much money they make, for themselves and their shareholders.
Single European market is the real problem
So much time, energy and angst is expended on debating the pros and cons of European Monetary Union that it's easy to lose sight of its underlying and perfectly reasonable purpose as a natural and logical corollary of the single European market - a way of ensuring that countries and companies across Europe compete fairly with each other on a level playing field.
So it is refreshing to see the Action Centre for Europe neatly sidestepping the bull fight over EMU and returning to the more down to earth question of how to improve the single market. What the enquiry, chaired by Lord Sheppard of Didgemere, found was that there are rather more urgent and pressing matters to correct in the single market than getting rid of currency fluctuations.
Companies still face considerable regulatory roadblocks to their right to operate in other member states, there's a way to go on harmonisation across a wide range of different industries and standards and there has been an abject failure to achieve a single European market in a number of vital supply industries, notably energy. Perhaps most important of all, free movement of labour remains a distant dream. In these circumstances the present dash to monetary union looks rather like putting the cart before the horse.
By appointing David Simon, who was a member of this enquiry, minister for competitiveness in Europe, the new Government has signalled its determination to push the process forward with dispatch. In the end, however, our main European partners are probably not going to need too much prodding. Six thousand Daimler Benz and BMW jobs lost from Germany to the US is a more powerful incentive to liberalisation and deregulation in Germany than any number of directives from Brussels.
Boots' dividend poser for the Chancellor
Neither Sir Michael Angus, chairman of Boots, nor Lord Blyth, his equally ebullient chief executive, are the type to duck difficult and controversial issues. So why the studied silence yesterday on the speed with which Boots is paying its pounds 400m special dividend, the latest in a line of bumper paybacks to shareholders of Boots amounting to over pounds 1.7bn since November 1994.
Could it be anything to do with the approach of Labour's first Budget, in which many are expecting the Chancellor drastically to reduce or abolish tax credits on dividends? Surely not. But then again why else would Boots want to exhaust its cash pile and some with such indecent haste. The extra pounds 100m tax exempt institutions will be able to reclaim in ACT is a feast which may soon not be available if the Chancellor, Gordon Brown, cuts back on this lucrative City perk.
Boots appears to be the only major company so far to attempt to outwit Mr Brown's supposed plans in this way. Others have certainly looked at a similar acceleration of dividend payments, but quickly rejected the idea. The political sensitivity behind any attempt to beat the tax man are clear.
Boots has certainly won over the City by trying it on, whether it picks up Brownie points with Labour is another matter. The announcement of 5,000 new jobs must go some way to salvaging its position with the new Government, but ministers won't much like this transparently sneaky attempt to slip through the fence before the gates are finally shut.
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