Scrutator: Service is not included

EVEN BEFORE last week's rumpus in the foreign exchange markets, the prospects for driving inflation down to zero were looking increasingly dim. For this, the beleaguered Prime Minister can blame his predecessor, or rather the class she did so much to encourage: the providers of services.

It is all very well for the Government to point to the inexorable downward path of manufacturers' factory gate prices, but these do nothing to relieve the upward pressure on the service sector, where inflation is still running at over 7 per cent, against a mere 2 per cent in manufacturing industry.

Nor is there much hope of any relief: virtually none of the industries and professions involved - which range from water companies, banks and insurance companies to lawyers and accountants - face any significant foreign competition. And they are all powerful enough to laugh at their customers - either because they are so much bigger, like the aforesaid financial giants, or, like the accountants and lawyers, they are so tightly organised that only the most egregious malpractice is punished, and competitive overcharging is a matter of professional pride.

The Government is clearly helpless faced with the smug and implacable greed of the 'older' professions, while the self-regulation of financial services started as a farce and is now becoming a public disgrace. The Government had to instal regulatory bodies when it privatised utilities - but, whatever their public posturings, these are bound to put the interests of the shareholders before those of the customers, a fact which has not gone unnoticed in the stock market, where the privatised utilities now account for a full tenth of the value of all British-owned securities.

Part of the problem is caused by previous inefficiencies. Our insurance companies are only now waking up to the fact that a teenager in a souped-up sedan is far more likely to have a prang than the classic 'lady driver living in a market town', while the banks have finally stopped the previously unmeasured cross-subsidising of services.

Banks never did compete on price, and insurance companies only do so for the choicest customers. Similarly you don't see many ads from lawyers advertising cut- price divorces, or from accountants willing to do your VAT for a reasonable sum. But the property business takes the cake. Developers and landlords simply cannot get into their arrogant heads that they can no longer continue to dish out the old form of leases under which rents went one way only - upwards, needless to say - with remorseless regularity.

Unfortunately, the Government is still so suffused with the spirit of Thatcherism that it sits paralysed, unwilling even to influence the market. It could, for instance, take an axe to the cost of the services it controls directly - like the exorbitant fees paid to the banks, consultants, public relations companies, lawyers and accountants which advise it on privatisation.

It could even take advantage of the desperation of developers to let their properties in central London (or in Docklands) and save us some money. Fat chance.