We're still guessing who'll pay the windfall tax
Saturday 22 March 1997
Perhaps that is part of the strategy. Keep 'em guessing until the ink is dry on Labour's first Finance Bill. Perhaps it is because the Shadow Chancellor does not want to give any hostages to fortune. Perhaps it is because even now, three years after it first mooted the idea, Labour is still tied up in knots drafting a watertight legal definition of how the tax will be applied
Whatever the answer, Mr Brown was on his best and most elusive form as the election campaign proper kicked off. On Tuesday, he finally appeared to nail his colours to the mast at Labour's first election press briefing. He announced that the tax would affect privatised companies that are licensed and regulated by statute. That would seem to cast the net pretty wide.
Unfortunately, the Shadow Chancellor then went on to qualify his remarks. The tax, he added helpfully, would apply "only to those privatised utilities that were sold off at an under-valuation and have had lax regulatory regimes".
The problem, as the privatised companies themselves have discovered, is that every attempt to define more precisely who is in and who is out merely adds to the confusion. As the current Chancellor, Ken Clarke, observed, Mr Brown was playing "an absurd guessing game, giving journalists a clue and daring them to work out the answer".
Thus the Guardian confidently asserted that Mr Brown's latest definition would exempt both British Telecom and British Gas. This newspaper and the Financial Times asserted, on the other hand, that both were now directly in the firing line, along with the Recs and the water companies. The one area of general agreement appears to be that Associated British Ports is off the hook. Nice to know if you are ABP but not much help to anyone else, considering that enough energy has been expended on the subject to power a small town.
It is worth unpicking Mr Brown's words one by one, because in the space of a single simple phrase he can pack enough ambiguity to keep a lawyer in fees for a lifetime. We can agree on what constitutes a privatised company. But what is a utility? Water, gas and electricity yes. But what about telephones, airports and railway tracks? BAA has a monopoly on airports in the South-east and is price-regulated by statute, but it will dispatch a 3,000 word document setting the record straight if you dare suggest it is also a utility.
BT and British Gas may exhibit many of the characteristics of monopolies. But in certain parts of their business, they face intense competition, in others, stringent regulation. BG says Clare Spottiswoode's latest price controls would rob it off pounds 850m - more than its annual profits - and force it to make half the workforce redundant. On the face of it that does not sound like lax regulation.
The question of who qualifies is, then, tricky enough. Deciding how much they should pay is even more arbitrary. Mr Brown says it will be restricted to those utilities that were "under-valued" at flotation. But he also says it will only apply to that element of profits which are "excess". Most companies fall into the former category but not all fit the latter. If excess profits are measured by the extent to which total shareholder returns in these companies have outstripped the market average, then BT and BG will not pay a penny.
If the tax is based on straight market capitalisation, they will be the two most heavily penalised companies. However, research published recently by Simon Flowers, utilities analyst at NatWest Markets, suggests that even using the market capitalisation approach can produce wildly varying results. In three of the five scenarios he examines, BT pays nothing.
Interestingly, however, all of them assume that the two generators, National Power and PowerGen, are clobbered even though they are not monopolies, are not price-regulated and, on some definitions, are not even utilities.
The one certainty is that Labour will levy the tax - how else will it raise the pounds 3bn needed for its employment programme? And the safest bet is to assume it will be spread as widely as possible to cushion the impact on individual companies.
Beyond that, the conjecture is as idle as guessing at the scale of Labour's victory on 1 May. Tony Blair will work with whatever majority he gets. The utilities will have to live with whatever tax he levies, however unfair and arbitrary.
Could Toyota and the French get on?
What do you get when you cross Europe's most chauvinistic nation with Japan's most conservative car company? Answer: a pounds 1bn Toyota factory in Lens, northern France. If you find all this just a touch unbelievable, then you are not alone.
The only thing the French and the Japanese car industry have in common is their animosity. It is not so long ago that the chairman of Peugeot, Jaques Calvet, described Britain as a Japanese aircraft carrier floating off the coast of Europe, a reference to the fact that we had become home to its three biggest car-makers. For good measure he also referred to the UK as the fifth island of Japan.
Strong words, but scarcely surprising from a nation which insisted that all Japanese video recorders came in through the obscure inland port of Poitiers and all Nissans from Sunderland were Japanese.
It is just conceivable that the French have learnt their lesson. While the arrival of Japanese manufacturing techniques has helped revolutionise the British motor industry, France has slipped down the league, as Renault's current difficulties demonstrate.
But has Toyota been persuaded to switch its investment strategy so fundamentally? It looked long and hard at Britain before deciding to invest pounds 1bn at its Burnaston car plant. For that it got a site which, in configuration, mirrors its plant in Kentucky where Toyota turns out 400,000 cars a year.
Even at 200,000 cars a year, Burnaston will only just be an economic proposition. Why spend another pounds 1bn and employ an extra 3,000 to build a similar-sized plant on the other side of the Channel? More to the point, why pay French wage rates and social costs when Britain is so much cheaper?
The Japanese may not like our coolness towards a single currency but there are plenty of other compensations, starting with the language and the golf courses. Burnaston should not throw in the towel just yet.
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