Prosser's proposal offers the PIA a way out

COMMENT: `That the normally trustworthy insurance industry could have perpetrated this mis-selling scandal in the first place is bad enough. Its apparent failure to deal with the compensation issue makes it seem doubly worse'

Full marks to Legal & General's David Prosser for coming up with a good though not wholly original plan for breaking the pensions mis-selling impasse. But are regulators and others going to bite, and if they do, will it not be such a reversal and climbdown for the Personal Investment Authority that somebody will have to go?

It has not been a good month for Joe Palmer and Collette Bowe, chairman and chief executive respectively of the PIA. First there was the roasting they received from the Commons Treasury Select Committee over the paralysis in attempts to deal with the scandal. Then there was the disclosure that those who have died awaiting compensation outnumber those who have had their cases settled by three to one. Now along comes Mr Prosser with his own way of dealing with the problem. By implication he suggests the PIA's approach may have been flawed all along.

Anything is better than the present shambles and the proposal would seem to deserve serious consideration, even if it does involve some loss of face for the PIA. The trouble is that the PIA is sticking to its guns. We've bent over backwards to accommodate the industry's needs on all this and now they are saying let's start all over again, is the PIA's not-unreasonable complaint.

Well maybe, but the truth of the matter is that the present approach is not getting anywhere, and Mr Prosser's proposal would seem to offer at least the hope of an early solution to what is proving to be an intractable set of problems. The approach pursued by the PIA is the exceedingly complex one of getting aggrieved policyholders reinstated into their old pension schemes, which requires a calculation to be made of the shortfall in contributions. The main difficulty has been persuading the pension funds to play ball, for given that this is not their problem it is for them a low priority.

The beauty of Mr Prosser's approach is that the insurance company doesn't have to wait for the pension funds to calculate the correct amount of compensation. By mirroring the benefit that the pension fund would have paid, it can solve the grievance immediately and settle the detail at leisure.

It should be pointed out that Mr Prosser's motives are not entirely altruistic. That the normally trustworthy insurance industry could have perpetrated this mis-selling scandal in the first place is bad enough. Its apparent failure to deal with the compensation issue makes it seem doubly worse.

The damage in public relations terms is incalculable. Mr Prosser's plan offers a way out, a way of saying we've solved this problem even though what the plan actually does is merely buy time in which to settle properly.

Even so, we should not knock the proposal just because it allows the industry to get shot of unwanted publicity. As Ms Bowe learned to her cost at the select committee last week, failure to solve this problem has begun to reflect as badly on the PIA as it has on the industry. It is in everyone's interests that this be settled and the Prosser route seems to provide a rather better answer than the PIA's.

Liggett's agreement is pure dynamite

When BAT Industries admitted a couple of weeks ago it would entertain serious offers to settle its US tobacco-related litigation it was clear the industry was preparing to abandon its untenable pretence that cigarettes were not addictive drugs that caused cancer. The defensive chain was only ever going to be as strong as its weakest link and yesterday Liggett snapped.

The proposed deal - a one-off multi-million dollar payment, then an effective 25 per cent tax on profits for 25 years, is dramatic enough. The agreement to make available top-secret internal documents showing the tobacco companies knew all along what dangerous narcotics they were peddling is pure dynamite. No wonder Liggett's rivals have been gasping to their lawyers for injunctions to keep the lid on their deceit. Allowing its employees to testify in the lawsuits against the rest of the industry threatens to open up a grubby and explosive Pandora's box.

Moreover, a personal statement from Liggett head Bennett LeBow that the industry has deliberately targeted young people as potential smokers and conceding that cigarettes are carcinogenic and addictive seems to imply that chief executives of the major tobacco companies were lying when they swore the precise opposite before Congress in 1994.

Mr LeBow is, of course, working to his own agenda. He is trying to sell Liggett and needs a deal to draw a line under the outstanding litigation, so the business can be valued. The usual rhetoric last night from the company's peers suggests Philip Morris, BAT and the others are not ready to roll over, except on their own terms.

What is remarkable about this unfolding drama, however, is the speed with which the terms of the debate are shifting. Only a year ago it would have been inconceivable for any tobacco company to be prepared to flag the addictiveness of its product, let alone put into the public domain documents that could blow a giant hole in the tissue of lies that has sustained the industry for 40 years. The endgame has begun.

Don't blame sackings on the strong pound

Just as patriotism is the last refuge of the scoundrel, so a strong pound is a handy bolt-hole for the chairman looking for an excuse to swing the jobs axe. Can it really be the case that British Steel is basing its next five-year plan on the number of German marks you can buy for a pound? If so, then Sir Brian Mofatt ought to get out of the steel business and go into the foreign exchange. With foresight like that he would make a killing.

Sadly, he does not possess any such gift. The reality behind the redundancies being spelt out to union leaders today is altogether more prosaic. British Steel was going to impose them anyway, but the spurt in the exchange rate provides a convenient excuse.

In the 1970s it was overmanning that gave British Steel its justification to wield the axe. In the 1980s it was overcapacity. Now it is that blasted exchange rate. German industrialists have grown used to living with a high exchange rate, until recently. When the average British firm is confronted with the same challenge, it induces near panic.

British Steel is unusually exposed to the pounds /DM exchange rate. But there is something called hedging and, when that runs out, there is something called management. In any event the relationship between exchange rates and plunging profits is not as linear as the company likes to make out. The seven-fold rise in Steel's profits between 1994 and 1995 confounds Moffat's law, because sterling was stronger on average, not weaker.

The pound is just as likely to be back at DM2.25 in a year's time as up at DM2.85. But either way it will make no difference to the 10,000 or so workers that will be looking for a job outside of a steel mill. Make British industry more competitive by all means, but please, don't use the excuse of the exchange rate.