Rocks ahead of mutineers on board C&W
COMMENT: 'The two of them can not carry on living under the same roof. The way things are going, the argument about who gets the house may be settled for them with an outright takeover bid.'
Tuesday 21 November 1995
At this stage, it is hard to know who to blame for this tragi-comic state of affairs -Lord Young, the chairman, James Ross, his chief executive, or the company itself, whose position as a medium sized telecoms player in a world full of giants was always bound to make strategy difficult to agree on.
As ultimate boss, the finger must point to Lord Young. A political and entrepreneurial wizz of undoubted marketing skill, Lord Young was a virgin at the business of a large multinational corporation before alighting on C & W as his escape route from politics.
Like all entrepreneurial types, he finds it hard to work with a number two. Even while in government he was notorious for it. At C&W Lord Young has turned that old adage of there only being room for one boss into a mantra, dispensing with one chief after another.
On the face of it, James Ross's position is equally difficult to defend. Refusing to become one of Lord Young's "disappeared," quietly abandoning ship in a few months time with his life-raft full of compensation, he has chosen to fight back through the press. Both executives and non-executives have been astonished by it, some to the point of outright disapproval, for whatever the wrongs and rights of Mr Ross's position, washing your dirty linen like this in public cannot help C&W as a company.
We do not yet know quite how damaging Lord Young's little "entrepreneurial" jollies in the Balkans, Kazakhstan, Israel and elsewhere have been. According to the Ross camp some of them are financially disastrous. Whether Mr Ross's own strategy of concentrating resources on the group's "hub" areas of the Far East, Europe and America will prove any more successful is anyone's guess.
One thing is certain. The two of them cannot carry on living together under one roof. The way things are going, the argument about who gets the house may be settled for them with an outright takeover bid. That perhaps is the best shareholders can hope for.
Mortgage picture is not that bleak
There have been numerous false starts as the housing market has stuttered into life and conked out again within months. Yesterday's mortgage figures have prompted more gloom, but the picture is not nearly as bleak as the headline lending figure from the building societies paints it. This is a market ready to recover, rather than one struggling to avoid another slump, and Budget tax cuts look like being the kick start it needs.
The low lending figure itself is unconvincing and could prove to have been an erratic number. New loan commitments by the building societies after adjustment for normal seasonal variations have risen by around 4 per cent in the past three months, according to estimates by HSBC Markets, the City brokers. The big banks yesterday said their mortgage lending in October was close to the recent monthly average. Price indicators also point to a stabilising market.
But it is the bigger picture of taxation, interest rates and the election timetable that has really changed compared with a year ago. There will be at least two stimuli by next spring. One is tax cuts, the other a drop in mortgage rates. This is the exact reverse of the outlook a year ago.
Base rates had then just begun to rise, and the Budget last year taxed fuel bills and brought in the second stage of income tax increases, including a scaling back of the tax relief for mortgage interest payments, which together made for a calamitous first half of 1995 in the housing market.
Of course, disillusioned homeowners with negative equity may take some convincing that a real change is under way. One damper that remains on the market is the level of mortgage debt relative to income, which remains not far below its all-time high. Gearing at such levels could slow any increase in house prices, perhaps to about the same as the increase in personal incomes. HSBC Markets, which is at the optimistic end of the City spectrum, forecasts a rise in prices of 6 per cent or so in the next six months.
The other problem is the all-important question of psychology. The calculus about whether it is cheaper to buy or rent still works out firmly in favour of buying, but first time buyers have not yet got over the shock that house prices go down as well as up.
There is a school of thought that says this experience will be imprinted indelibly on the minds of a generation and that house prices are set for a long decline in real terms, as happened in the 1930s. But it bears repeating that house purchase is more affordable than at any point in the past twenty five years. In any market - and housing has never been different - the turn invariably comes when most players have convinced themselves that the trend of the recent past will continue for ever. That, after all, is what fooled so many people into buying at the top in 1989.
A Dutch auction of taxes and spending
In his Mansion House speech, John Major reiterated the Conservative goal of getting public spending below 40 per cent of national income. Meanwhile, Gordon Brown set out New Labour's stall as the low tax party. This Dutch auction of spending and taxation pledges is a depressing spectacle.
The best John Major can venture as a new way of cutting public spending is to invoke the Private Finance Initiative. But rest assured, Kenneth Clarke will still announce in his Budget next week that public spending is to fall before long below 40 per cent. Yet if the Tories have found it so difficult and so traumatic to cut spending in real terms, how much more so will it be for a Labour government. The party's commitment to social justice will see to that, whatever Gordon Brown may say about his iron belief in fiscal prudence.
The Shadow Chancellor proclaims his objective of reducing the starting rate of income tax to below the Tories' 20 per cent lower band. Even cutting it to 15 per cent would cost pounds 4bn. We are not told where the money is going to come from - other than Labour's claim that it will manage the economy better
We urgently need an honest debate about spending and taxation priorities. What we do not require is unrealistic objectives and unfunded pledges. Yet on the basis of today's dismal contributions from the two parties, that is what they intend serving us both in the Budget debate and in the election campaign which has already begun.
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