Railtrack sale is straight off the back of a lorry

`What better way to whet the appetite of investors than to complain they are being offered outrageous dividends. Well done, Clare'
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The Independent Online
Did SBC Warburg set a trap for Clare Short, with its little wheeze of paying a pounds 69m dividend out of last year's Railtrack profits, earned while the company was in the public sector?

She described the initiative, confirmed in yesterday's prospectus, as a "monstrous outrage" and who knows, from a moral perspective she may well be right. But it certainly hasn't done prospects for this most controversial of privatisations any harm.

On the contrary, it served to underline the generosity of the post-privatisation dividend policy, giving another kick to the smoothly orchestrated marketing campaign. What better way to whet the appetite of investors than to complain they are being offered outrageous dividends. Well done, Clare.

Together with the pounds 30m interim next February, the dividend commitment will bring a handsome 12-month return of 11-12 per cent on the 190p part- paid shares. And there is plenty more where that came from. Private investors get the first instalment at a discount to the institutional offer. The result is that the total first-year return is approaching 20 per cent - tax free for those who use Peps - or about four times as much as from a building society.

Furthermore, the second instalment is payable in a new tax year, allowing those who want to fill their boots - and their single company Peps - with Railtrack to use a full two years of allowances. Bar giving this company away, the Government could scarcely have done more to ensure a successful issue.

These share incentives are only part of the investment story. The regulator has also agreed that Railtrack can keep 75 per cent of property profits above those already taken into account in setting track access charges. More important than both of these, the regulatory regime, setting track access charges at inflation minus 2 per cent from now on, is a good deal less onerous than might it might have been.

Furthermore, the sting has been taken out of the performance regime which in theory should be forcing Railtrack to pay compensation for any mishaps that delay trains. In the first couple of years, Railtrack will be reimbursed for almost all the penalties incurred, and they will not be fully phased in until after the end of the century.

It was always inevitable that Railtrack would be priced to sell rather than to maximise revenue for the taxpayer. As it is, the Government has chosen to knock the shares out as if they had fallen off the back of a lorry. Labour's bluster won't halt this one.

Flexible labour makes for a feel-bad factor

At the Lille jobs summit earlier this month, ministers and officials went out of their way to extol the benefits of the flexible, deregulated labour market. However, there is at least one aspect of Britain's approach to the jobs market that Kenneth Clarke will not be boasting of to his European counterparts, and that is its tendency to deliver a lower tax take than the old "jobs-for-life" way of organising things. Government figures later this week are expected to confirm that public borrowing last financial year was at least pounds 3bn higher than the Treasury forecast at the time of the last Budget and some pounds 11bn higher than predicted 18 months ago. This is only in part due to the Treasury's notoriously unreliable forecasting record. Nor is it wholly accounted for by the Government's failure to deliver promised cuts in public spending. The villain is a much lower tax take than anticipated.

Both the Treasury and Customs & Excise have begun inquiries into how they could have gone so badly awry. The answer is likely to be that it wasn't really their fault; the economy has changed so fundamentally that it doesn't behave as it used to. Just as this has been a recovery without the feelgood factor, for much the same reasons it has also been a recovery without the expected rise in tax yield. It is not just in the area of corporation tax and VAT - where the accountants have been working overtime to minimise returns - that the tax take is falling short of expectations. Across the board, tax yields have been lower than they should have been for this stage of the recovery.

This in turn may have been caused by the changing nature of the workplace. Well-paid, full-time jobs that deliver reliable and predictable returns to the Inland Revenue continue to be shed at a frightening pace. As often as not they are replaced by lower-paid, often temporary, part-time work. Meanwhile the black economy is blossoming in a way that partly compensates for the lower earnings to be had out of legitimate employment. (The Government denies this but the wealth of anecdotal evidence suggests otherwise). Furthermore, because continued job insecurity (the most potent feature of the feel-bad factor) discourages spending, indirect tax such as VAT is not growing at the rate it should.

Large corporations with their state of the art tax-avoidance techniques make an easy and politically beguiling explanation for poor tax returns but they are only a minor part of the problem. When Kenneth Clarke next urges our Continental partners to adopt the Anglo-Saxon approach to labour markets, he had better warn them; it won't make their task of meeting the Maastricht criteria on public borrowing any easier.

Too little, too late for building societies

As the stampede from mutuality continues, the Government's efforts to provide special conservation status for the endangered building society movement look increasingly irrelevant.

John Burke, chief executive of Bristol & West, which yesterday announced its sale to the Bank of Ireland, rightly described them as "too little, too late". The answer to the question, can they be saved, is being loudly trumpeted by the market, and sounds very much like "certainly not". While, no doubt, a few well-rooted regional societies will remain, relics of a byegone age, the days of building societies as a significant part of savings and lending in Britain are rapidly being counted.

Is this a mistake we will all come to regret? Are we standing by while some inherently superior form of doing business is being crushed by the brute force of capitalism on the rampage, as some of the more melodramatic of the stakeholder apologists would have us fear? Surely not.

Markets by their very nature evolve, and those firms that thrive are the ones that best achieve the difficult balance of keeping customers, employees and shareholders or stakeholders happy, whatever the form or label given to their way of doing business. More ridiculous, however, is the alarmist suggestion that these once cautious businesses, as soon as they convert to plc status, will lose their heads in profligate lending sprees, sowing the seeds of a UK savings and loans disaster of US or Japanese proportions.

Building societies never offered a panacea against poor management, just as plcs are no recipe for disaster.