Treasury covers itself in buckets of whitewash
Sunday 30 July 1995
The March power sell-off was an extraordinary episode, in that HMG stood accused of insider dealing. To recap, the Government was selling its remaining shares in the electricity generators National Power and PowerGen. Late in the privatisation process, it secretly learnt a key piece of information - that Professor Stephen Littlechild, the electricity regulator, was considering a fresh review to clamp down on the regional electricity companies. But it decided to press on without informing prospective buyers. The share sale went through, the Professor announced his review, and the share prices of the two generators plunged, leaving a lot of incensed investors.
The Treasury official responsible for the subsequent investigation exonerated everyone on the grounds that (1) Professor Littlechild had not firmly decided to launch his review and (2) no one could have foreseen that the threat of a review into the regional electrcity companies would hit the share prices of the electricity generators - different animals altogether. Neither excuse stands up to much scrutiny. True, Professor Littlechild had not firmly made up his mind, but the Government still knew a review was in the offing - more than the benighted punters who innocently bought its shares. There is no getting away from the fact that it possessed potentially important information not available to would-be investors.
As for point two, a 10-year-old could guess that a clampdown on A is likely to have an impact on B, where B depends on A for its livelihood. Maybe the Government's advisers Barclays de Zoete Wedd and Kleinwort Benson couldn't see this. But if not, one wonders whether they are worth the heavyweight fees they charged. (I hope the Treasury is at least demanding a refund.)
The recommendations of the Treasury report are as misguided as the conclusions were wrong. To prevent future mishaps, the Treasury suggests that regulators be gagged during sensitive moments in privatisations, recommending "blackout periods".
This is both shabby and dangerous. Shabby in that it implies that Professor Littlechild was wrong to open his mouth when he did, when it was the Government and its advisers who behaved dishonourably. Dangerous in that it sets a precedent that the stock market should be denied information to convenience a share issuer.
The Treasury report rather snootily opines that "regulators may wish to have access to appropriate expertise in the operation of the stock market and related matters". Perhaps it is the Treasury that is in most need of said expertise.
SIX DAYS into Scottish Power's pounds 1bn bid for Manweb, it is the predator which has made all the early running. Scottish Power was briefing City analysts on Manweb's shortcomings within hours of its dawn raid last Monday. It has succeeded in painting a vivid picture of the super-efficient Scots coming in to shake up the sleepy and inefficient Scousers.
But Manweb is not defeated yet. John Roberts, its chief executive, is clearly prepared to consider all options to repel Scottish or at least force a more generous offer. When I asked him what those options might include, he replied, in a voice heavy with meaning: "We've got a very strong balance sheet." If all else fails, expect a dividend bonanza along the lines of Northern Electric's wheeze.
Meanwhile, there remains the possibility of a reference to the Monopolies and Mergers Commission. Looked at narrowly, there is precious little justification for an investigation. But the wider industry is crying out for examination. Consumers have had a lousy deal vis-a-vis shareholders from the first five years of privatisation. We need to devise a better shape for the industry for the next five years. Some debate would be useful. It may be that the consolidation of the industry into four or five large players overseen by a tough regulator is the best structure for the consumer. But an objective analysis of this most regulated of industries is more likely to come up with the optimum solution than a bare-knuckle free-for- all.
Sir Brian walks alone
IT IS Sir Brian Pitman's willingness to plough a lonely furrow that has made him Britain's best regarded clearing banker. The Lloyds Bank chief spent the 1980s sticking doggedly to the boring business of delivering value to shareholders while his peers in other banks were having a much more exciting time flushing banknotes down the drain.
Sir Brian, the banker, is to be admired and heeded. But what about Sir Brian, the economist? He reckons the Government is not doing enough about inflation. He clearly believes interest rates should be raised, though, consummate politician that he is, he stops short of actually saying so. But in taking his stance, he is virtually alone among business leaders, as our straw poll on page 1 makes clear.
Of course, asking businessmen to approve interest rate hikes is a bit like asking turkeys to vote for Christmas. But the consensus is undoubtedly anti-Pitman. Even the CBI and the Institute of Directors agree on this one. We should know more this week when the Bank of England publishes its annual inflation report. But with both consumers and businesses set against any rise, Ken Clarke will need a lot of persuading. Sir Brian may be right, but like Cassandra, he looks fated to be ignored. For the moment, anyway.
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