In the City
The old boys
Nicholas Davenport
So the Old Boys in the City were right. The election was postponed as they said it would and my prediction was read in this column on Thursday morning when the markets Opened. But it was disbelieved. Who are the Old Boys anyway, they asked, and what do they know? By the Old Boys I mean the old City Establishment — the boards of directors who manage and control the investment of the huge life and pension funds. I was once one of them. If ever you are elected to be a director of one of these boards you are there for your working life, for they are selfPerpetuating oligarchies. Exactly the same thing happens in the trade union world and in the building societies. Birds feather their nests. It is all really an Old Boys racket. But they really do know how things should be done in the British Establishment at the top Of which is the greatest Old Boy of all — the Right Honourable James Callaghan. He knew full well that with all the scandals blowing around public life at the moment one could not expect decent people to leave their television sets to go out and vote for confirmed hypocrites in Westminster. By staying on and insisting on the 5 per cent pay guide line Mr Callaghan probably loses the good will of those whose living standards have been improved by the fact that average earnings in the last twelve months have gone up 15 per cent against a rise of under 8 per cent in prices. This escalation will begin next year to have its ill effect upon the inflation index, especially if the trade unions play havoc with the government's new pay guide lines, as they did last time. But, as I have very rudely said, if the figures were to look too bad they could always order the Statistical Office to compile a new index which would confuse everybody. Curiously enough, this is already being done with the disappointing production index. It was beginning to look a little sick — in fact to suggest that labour really does not care about raising output and productivity. The production index was based on the average 1970 — 100 in real terms and seasonally adjusted. The industrial index for April was 105 and for June 104.2. This hardly supported the government's claim that things were better and Production looking up. So for July the index is to be changed. It will be based on 1975 — 100 and the result will be to produce a higher rate of growth for the years 1975 to 1977 (under Labour) because of the greater weight accorded to North Sea oil production. Who said Labour didn't work? It certainly does work in the Statistical Office and I should add in the Tax Collector offices Whose new demands are now taking joy out of our life. There is another index which Mr Callaghan claims to see improve 'under Labour' — the surplus on the balance of payments. But in spite of North Sea oil it has not improved by anything like Mr Healey's estimates. If Labour thought it could ride to election success on the crest of a great oil bonanza it must now be having second thoughts. The completion of the oil terminal on the Shetlands, designed to process oil coming from seven North Sea fields, is behind schedule. The snag has been the gas stabilisation plant which strips out the gas and natural gas liquids and then allows the 'dead' crude oil to be processed into its marketable products. It was hoped that the oil companies would be able to have their 'dead' crude oil processed at this terminal by the end of the year but it is not now considered possible. They can, of course, burn the gases in flares on the drilling platforms but the government is not willing to allow them to waste gas unnecessarily and so production from the wells has to be restricted. The Brent field had to stop loading crude oil into tankers last year when permission to burn gas was refused. Wood Mackenzie, the Edinburgh stockbrokers, estimate that the value of this delayed oil in 1978 will be almost £.500 million. So Mr Healey's estimate of an over-all surplus of £750 million on our balance Of payments this year is not going to be realised. A small surplus perhaps, but as the 'invisible surplus' has been running much below normal this year the over-all surplus cannot be more than a few million. The oil bonanza will come in 1980 —too late for the election.
To create the impression that all is going well under his calm administration Mr Callaghan has referred to our strong reserves as proof of the growing strength of the economy 'under Labour'. This has provoked a correspondent to write me an indignant letter, saying that the official reserves are nearly all liabilities, being deposits liable to withdrawal on demand or at short notice. This is true. Although the total reserves at the end of August — $16,405 million —look good they are mostly pledged to repay our external borrowings — short and medium-termed. There was a 'massive repayment of the IMF loan in April after 'the reserves' had topped $20,000 mil lion and Mr Callaghan must face the pos sibility — almost the certainty — that sterling's present strength will be followed by sterling's weakness and when he has to support sterling by intervening in the exchange markets the 'reserves' will fall.
But there is one card which Mr Callaghan is keeping up his sleeve which may astonish some people. Our gold holdings in the reserves, amounting to 214 million ounces, are still valued at the old official price of $42 per ounce. If they were valued at the current market price for gold, which is over $100 an ounce, he could announce a windfall of around $1,300 million. Not a trump card but a useful card to play in an election when the average voter does not know the difference between mil lions and billions and government finance and public sector borrowing requirements are far beyond his comprehension. It will be the simple figure for unemployment which will decide the next election and I cannot see this doing much but creep slowly up.
The postponement of the election leaves the gilt-edged market in its prevailing state of indecision and gives the bull market in equities a chance to forge further ahead. But I do not anticipate that it will quickly jump through its 1977 top of 549 and 'reach 580 by Christmas and 600 by the spring budget of 1979' as one columnist put it. This optimist headed his column 'Why they love Jim'. They don't love Jim; they hate Jim. Mr Callaghan has not got the confidence of the Old Boys Brigade who really believe him to be capable of handing over the City to the bolsheviks provided they ask him to remain prime minister. So there will be a cautious approach in the markets to the election reprieve. The gilt-edged market will be anxiously waiting to see if the Ford Motor workers break the 5 per cent pay guide-line in October, which would be a signal for the rest of the wage claims.
Previous page
