Like it or hate it, profit is a necessary thing

JEREMY WARNER

The City is worried. Not about all the reforms Gordon Brown, the Chancellor, is trying to push through on monetary policy and City regulation. Nobody disagrees very much with all that. But about the forces of Old Labour, which now that the party is back in power, are with growing confidence beginning to stick their heads above the parapet once more.

First we had Chris Smith, the Heritage Secretary, who, by demanding that Camelot directors pay their bonuses to charity, has in effect challenged the principle that private-sector companies should be allowed to pay their staff and directors what they please. And then there was John Prescott, the Deputy Prime Minister, ranting and raving about Railtrack's profits in a manner which implied that privatised utilities shouldn't be allowed to make a profit at all. "It's basically taxpayers' money," he said of Railtrack's profits.

For the time being all this is just rhetoric, and judging by yesterday's developments at Camelot, rhetoric from which the Government can be persuaded to back away. Labour can hardly be blamed for wanting to play to its audience. Misguided and silly though these views might be, it is nonetheless what an awful lot of people think and no amount of explaining the value of profit and incentive is going to persuade them otherwise.

So far the new Government has confined its attack to the soft underbelly of business and finance, to the privatised utilities and the national lottery. These are public-service businesses or franchises, and monopolies to boot. To attack profits and pay in these companies is not the same as attacking a businessman's right to make money out of his own entrepreneurial success. Few people in the parliamentary Labour party, let alone the Government, would do that.

Even so, once you start attacking the idea of profit you are on a slippery slope. Such talk is hard to reconcile with Labour's supposed conversion to free market economics, for the whole raison d'etre of the capitalist system is the profit motive. There are no halfway houses here. Either it is accepted that the generation of profit is the best way of creating wealth, choice and value in the economy or it is not and Labour is back there with Lionel Jospin and the failed policies of a bygone age.

This is the case even with the privatised monopolies, where the idea of profit is not so easily defended. The fact that taking the axe to utility profits would be a breach of the terms under which these companies were sold is perhaps the least of concerns here. Lord knows, the City is as accomplished as the Government when it comes to the business of selling on the basis of a false prospectus. But the fact of the matter is that if you want the private sector to run and finance these things, you have to give it the incentive to do it. And it has been the overwhelming experience of privatisation, even among the water and electricity companies, that there are huge benefits in doing so, both in terms of quality of service and charges.

So the City is right to be worried. And not just because Labour may not be quite as "new" as it pretended during the election. The City too could find itself an object of attack and if it does, the City's super rich, many of whom are foreigners these days, are simply going to up sticks and go somewhere else.

Presumably Tony Blair meant what he said yesterday when he told European leaders to "modernise or die". Unfortunately he cannot yet claim all the high ground. Labour, it seems, has a little modernising of itself left to do. It is an uncomfortable truth that high profits and excessive pay is part of the price you pay for a successful free market economy. No amount of moral indignation is going to change that.

The Nationwide Building Society is bending over backwards to be nice to the ginger group of members who want it to abandon its lonely adherence to mutuality and convert like everyone else. The directors have even agreed to fund the dissidents' campaign expenses. But just being kind to the rebels is not going to persuade members to vote against them. Their campaign slogan, "if you want pounds 1,000, vote for us" has a very basic appeal which most of us are going to find hard to resist.

Nonetheless, I'm instructing my wife, who is a member, to vote against. Whether she'll listen is another thing, for there ain't much doubt that voting against conversion requires some self sacrifice. Nationwide has tried to argue otherwise, and to be fair their case is not a bad one. Over the longer term, the argument goes, you will actually be better off by remaining mutual than if you convert. This is because money which other societies are having to pay out in dividends to their new shareholders can at the Nationwide be used to fund keener borrowing and deposit rates.

This is no mere theoretical argument. The Nationwide was one of the few societies yesterday not to raise the cost of a mortgage in response to the Bank of England's increase in base rates, thereby widening the differential with the Halifax on a variable rate mortgage to 0.65 per cent. On a pounds 50,000 mortgage, that's worth pounds 30 a month, or pounds 360 in a full year. The problem is that most people have smaller mortgages than that. Furthermore bank shares have risen so strongly over the past month that Nationwide would probably be worth quite a lot more than pounds 1,000 per member on flotation. Add in dividends and the financial argument for staying mutual doesn't really stack up.

All the same, it would be a crying shame if the Nationwide, the last of the big mutual building societies, were to convert too. This is not said out of any nostalgic attachment to the mutual tradition. On the whole, I'm not one for preservation orders. Rather it is said because the Nationwide, by striving to provide a tangible mutual benefit to members, is adding some real competition to the market place. Without a shadow of a doubt mortgage rates would be higher and deposit rates lower if the Nationwide converted. That's not just at the Nationwide either, but across the board. The shareholder's gain would be the customer's loss. So don't do it. Stay mutual.

That Dick Brown, the American who came over here to run Cable & Wireless in the wake of Lord Young's spectacular boardroom row with James Ross, has gone and done it again. He's considered by many internally as a bit of a fruitcake, but the proof of the pudding... Already his deal-making acumen has succeeded in putting Mercury on a decent footing for the first time in its largely miserable existence. Now he's succeeded in establishing a long-term relationship with China Telecom in a manner which seems largely to safeguard the company's interests in Hong Kong. Fruitcake or not, he's certainly making waves.

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
ebooksAn unforgettable anthology of contemporary reportage
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering