Now comes the hard part, Chancellor

City & Business
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The Independent Online
After the euphoria of a landslide election victory the Labour Party must now deal with the harsh and more mundane reality of government. How different Cabinet ministers will find life as they emerge from the shadows and discover that broad generalities are no longer sufficient to secure a warm reception. It is specific action, not soothing words, which are now demanded over luncheon tables and early evening cocktails.

There is a residual will on the part of the industrial and financial sectors not to offend the new masters of the universe. That will make their transition from vote-winners to policy-makers less traumatic. However, at some point the reassurances that New Labour is different will have to give way to some definition of what New Labour actually means for the business world.

There will be no shortage of opportunities to provide that definition. It will be, however, a process not without its difficulties. It is easy for a party in opposition to sign up without question to prudent management of the economy. It is more contentious for the government of the day to implement the policies which will deliver said management.

An immediate question facing Chancellor Gordon Brown is whether or not to raise interest rates. In its most recent public statements the Bank of England has been pressing for a quarter point rise. However, inflationary pressure is relatively subdued at the moment and the arguments for an automatic hike are less compelling.

Indeed manufacturing industry will argue quite vehemently that an interest rate is not only unnecessary, but that it would also be extremely damaging since it would underpin the strength of the pound which is costing exporters dearly.

However, financial markets have already factored in a quarter point rise in base rates and anticipate a further quarter point increase during the summer. Indeed the anticipation of rising interest rates is cited as a reason for international confidence in the pound and the new Labour Government.

There is a clear temptation then for the Chancellor to signal his contempt for inflation by obliging with the requisite rise. But how will that look to an electorate which has just swept his party to power? Interest rate rises are rarely seen as tools of economic management, rather as the cause of higher mortgage payments.

If he does increase rates, will Mr Brown be seen as a tough chancellor, or a push-over for a Bank which never seemed to get its way with his predecessor?

However, if he resists a rate rise then the Chancellor will be drawn down a path of tax increases to secure the necessary dampening of consumer demand. He may delicately manage the exchange rate lower and help exporters, but how will a back-door tax-raising Budget be judged by those who have been assured that direct tax rises are not on the agenda?

It is an extremely tough call made tougher by the fact that the decision will be pored over and analysed by City pundits and the media for some indication of what this means for long-term economic policies.

Right across the business spectrum there are other decisions which require immediate attention. The proposed British Airways alliance with American Airlines was put on hold during the election. It is now nearly a year since it was first announced but is no nearer to resolution. Margaret Beckett, the new President of the Board of Trade, must handle the complexities of a deal which are only compounded by the intense lobbying of rival airlines including Virgin Atlantic, headed by Prime Minister Blair's new friend Richard Branson. The deal is linked to US demands for a new open skies agreement and also faces opposition from the European Commission. It is a political minefield but it has to be dealt with.

In the next few weeks, Sir Andrew Large will step down as chairman of the Securities and Investment Board. A new appointment must be made. But will that appointee be someone to keep the seat warm or the person who will oversee a fundamental overhaul of the financial regulation structure?

There are other difficult calls, such as whether to do Henley or the men's semi-finals at Wimbledon. But no one said running the country was easy. Welcome to the real world.

Raising the stakes

IT IS no coincidence that this week sees the publication of The Stakeholder Corporation by David Wheeler and Maria Sillanpaa. Regular readers have had a flavour of this excellent book in articles penned for us by the authors over the last three weeks. Stakeholding is one of the New Labour mantras but this is a business book not a political tract. However, on the assumption that stakeholding will underpin much of the new government's policy-making in the commercial sphere, The Stakeholder Corporation's appearance is timely.

Appealingly, it adopts the tone of practical guide rather than moral lecture. Its aim is to assist businesses rather than shame them into action. Most crucially it demonstrates that there is no conflict between the stakeholder and the shareholder. Maximise the value of the former and you maximise value for the latter. The book provides compelling evidence that businesses run with the broader stakeholder in mind ultimately succeed in increasing long-term shareholder value.

But the authors do much more than float this as a tantalising proposition. Extensive case studies along with what is in effect a how-to-do- it manual make it the ideal companion for any executive interested in transforming their business.

Unfortunately there is no quick- fix solution for the lazy company. The stakeholder corporation requires energy and commitment. But by the end of the book it is difficult to question the value of making such an investment. It is well written, well structured and well worth taking the time to study.

The Stakeholder Corporation, by David Wheeler and Maria Sillanpaa, is published by Pitman at pounds 19.99.