Michael Harrison's Outlook: Far from being a scandal, the Qinetiq float looks like being a victory for the taxpayer

Ryanair, the web's cheekiest airline; Who will be piped on board P&O?; Golden Brown's trick cycles
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The Independent Online

After the hype, the horror and the outrage comes the reality. And the reality of the Qinetiq flotation is that the taxpayer will profit handsomely. In addition to the £230m the Government has already extracted since Carlyle was brought on board as a minority investor in 2002, the float will raise a further £274m for the taxpayer and leave the Ministry of Defence as the biggest single shareholder with a stake worth a further £287m. That brings the total benefit to the taxpayer to close on £800m.

True, Carlyle will also profit massively, turning its original £42.4m equity investment into a £305m windfall - a 619 per cent profit. So too will Qinetiq's executive chairman Sir John Chisholm, who has demonstrated the alchemist's touch, turning his £129,000 stake into a shareholding worth £24m. But the increased value of Sir John's holding has depended on performance targets being met while there is a case to be made that without Carlyle on board, Qinetiq would not be in the right shape to come to market at all. Certainly, it would not have made the inroads it has into the US which now accounts for about a third of revenues.

The costs of £25.6m are large but not excessive set against the usual advisory fees for public offerings or the £1.3bn that Qinetiq will be worth if the shares are priced at the top of the range. This valuation has proved possible because the Government has chosen to sell Qinetiq to institutional investors through a book building process.

There has been much righteous indignation and gnashing of teeth over the exclusion of private investors whom, it is said, are in some way missing out, even though they are perfectly able to buy shares in the company once it begins trading.

The subtext is that the retail investor should be cut a special deal - or at least allowed to buy shares on the same "preferential" terms as big City institutions on the basis that Qinetiq will be sold off on the cheap.

This argument is as hypocritical as it is intellectually dishonest. The obligation on the Government should be to maximise returns to all taxpayers, not just those who can afford to buy Qinetiq shares in the forthcoming flotation. In that respect, the flotation should be measured a success.

No one knows where the shares will end up once they begin trading next month, or indeed whether Qinetiq will turn into another AEA Technology, which crashed and burned following privatisation. But whatever upside there is will be enjoyed by the taxpayer as the MoD will remain the biggest single shareholder with just under 24 per cent. Contrast that with the measly returns the Exchequer would have achieved had the business been sold lock, stock and barrel three years ago.

Without so much as a blush, the Conservatives have sought to make political capital out of the Qinetiq float, oblivious seemingly to the extravagant privatisation giveaways they presided over for 18 years. But the truth is that Labour has shot the Tories' fox on this occasion and no amount of huffing or puffing can obscure that fact.

Ryanair, the web's cheekiest airline

Good morning, Mr and Mrs Smith and welcome to Ryanair. Did you pack these children yourself and could anyone have tampered with your bags? Good, so that's four large suitcases you're checking in. Let's see, that will be £20. I know that's more than the cost of the fare but didn't you see the WARNING NOTICE! on the website? You don't have the internet? Oh dear, that means you won't have checked-in online, either. I'm afraid in that case you'll have to wait for everyone else to board first. Yes, the flight is rather full today. Never mind, I'm sure the kids will be better behaved on our short flight to Pisa if they're not sat together. I know it's not ideal, especially for the toddler. If I were you, I'd blame him anyway - isn't it shocking the amount of stuff you have to take on holidays for the young ones these days?

Take a tip from me and use the Web next time. It's all very simple. Our luggage allowance is going up from 25kg to 30kg so that means the more bags you check in the more we can charge you. But bear in mind that we're also reducing fares by 9 per cent and expect to save 10 per cent on handling charges so the net effect is to make these changes revenue neutral. At least for us.

Now then, how would you like to pay for the bags? We accept cheques, cash and all major credit cards. Oh dear, you've accidentally packed your wallets and your photo ID in your hold luggage, have you? Can someone please stop that conveyor belt, and quickly. Now then, Mr and Mrs Smith, there seems to be quite a queue building up behind you. That is most definitely not the way it was supposed to happen. Here's another tip, gratis as they say. The next time you fly, travel light. Or travel easyJet.

Who will be piped on board P&O?

One foreign takeover tussle for a British company was settled yesterday after Danaher of the US backed out of the contest with Honeywell for First Technology. But the scrap between the Port Authority of Singapore (PSA) and Dubai's DP World over P&O remains very much alive. In the next 24 hours, the Singaporeans should formally announce a recommended offer for P&O worth 470p a share or £3.5bn, putting the ball squarely back into the court of DP World. It then has to decide not just whether to outbid PSA but at what price in order to be confident that the Singaporeans will not come back with an even higher offer. P&O is a strategic asset for both bidders, which means normal valuation rules are less relevant. The market still expects P&O to be sold for more than 500p. Six months ago that would have seemed like a crazy price and even today it hard to make the arithmetic stack up.

DP World may be backed by the government of the United Arab Emirates. But contrary to impressions, this is not an oil-rich state. In fact, oil accounts for very little of its revenues. How much gas does it have left in the tank?

Golden Brown's trick cycles

Like a trick cyclist, Gordon Brown enjoys trying to run rings around critics of the public finances. His last wheeze was to extend the life of the economic cycle from seven to 12 years so that his "golden rule" of borrowing only to invest and funding current expenditure from taxation remained intact. Even so, the Institute for Fiscal Studies calculates that there is still a £2.5bn hole in his sums which will have to be covered either by increased taxes or reduced public spending. This is not as bad as the £13bn hole the IFS detected in 2004 or the £11bn shortfall it calculated last year. So, in that sense, the Chancellor is getting the better of his critics.

But the underlying picture is one of a government deficit which is growing bigger, however the numbers are sliced up. The productivity drive the Chancellor has championed is not delivering results and, if anything, has gone into reverse in the public sector. Moreover, the risks to Mr Brown's latest forecasts are all on the downside. For the numbers to add up, there needs to be a big rebound in tax receipts. Given the decline in corporate profitability and the rise in unemployment, that is beginning to look like a risky assumption.

m.harrison@independent.co.uk

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