Labour tries its hand at privatisation — and hands John Major’s firm a fast buck
QinetiQ, the business created out of the Defence Evaluation and Research Agency, is Labour’s first attempt at full-scale privatisation, and it has deservedly run into heavy flak. The Daily Telegraph is particularly agitated about the fact that private investors cannot apply for shares in next month’s £1.1 billion flotation, which is open only to institutions. Bankers handling the sale say QinetiQ is too complex to explain to ordinary punters without spending unjustifiably large sums on a marketing campaign. Spokesmen for small shareholders declare that every citizen should have the chance to benefit from the sell-off of state assets. The bankers’ attitude is certainly patronising, but the institutions that will take up the shares are no more than collective repositories of citizens’ savings, and the row about who can apply is a distraction from the real potential scandal, which is the matter of how the US ‘private equity’ group Carlyle was allowed to acquire, for £42 million in 2002, a one third stake in QinetiQ that could be worth £340 million after the flotation.
Carlyle is a curious beast, which may or may not be as sinister as it is painted by Dan Briody in his book The Iron Triangle (John Wiley, 2003) — strongly recommended to anyone who enjoys a good conspiracy theory. Its European chairman is Sir John Major, and famous names on its payroll have included George Bush Senior and former US secretary of defence Frank Carlucci. Its connections to the Pentagon and the military establishments of America’s allies have no doubt been valuable to QinetiQ. But we should demand to know exactly how valuable, because (as the former defence minister Lord Moodie admitted last week) Carlyle clearly got into QinetiQ very cheaply. After little more than three years, Major’s firm will collect an eightfold profit which counts as a direct loss to British taxpayers, who might otherwise still own the whole QinetiQ business. When the resale of Eversholt and Porterbrook — companies formed by Major’s government to own and lease railway rolling stock — produced similarly freakish profits for early investors, Labour condemned it as ‘a saga of privatisation excess’. Funny how history repeats itself.
Iced lolly
There’s something fishy about Iceland. This treeless rock in the north Atlantic, previously of interest only to Bjork fans and intrepid anglers, is emerging as a new utopia of entrepreneur ship. Icelandic investors have had a hand in an extraordinary number of recent deals in Britain and the Nordic countries. The latest is the acquisition of a stake in easyJet by Flugleidir, the group which owns Icelandair. Among other British businesses already in Icelandic hands are Hamleys toy shop, Goldsmiths the jewellers, and the Big Food Group (conveniently including the Iceland frozen food chain), all of which belong to a conglomerate called Baugur, whose chief executive Jon Asgeir Johannesson seems to have incurred the enmity of Iceland’s Prime Minister, David Oddsson, and has been busy fighting corruption charges in Reykjavik. In the City, the stockbroker Teather & Greenwood is owned by one Icelandic bank and the investment bank Singer & Friedlander is owned by another. What is intriguing is that all this activity emanates from such a tiny and remote economy: Iceland has a population the size of Bradford’s, and a gross domestic product — largely dependent upon fish — smaller than the annual turnover of Sainsbury’s.
So where did all that deal-making drive and those investment billions come from? The positive spin cites a combination of favourable factors, starting with a pure Viking gene pool that has bred a nation of natural entrepreneurs, and a community where everyone knows everyone, making it particularly fertile for business networking. Eurosceptics like to point out that Iceland’s membership of the European Economic Area but not of the EU itself gives it the advantages of market access without concomitant burdens from Brussels. Add to that low taxes, exceptionally high levels of internet literacy, an urge to break away from traditional livelihoods as fish stocks dwindle, and long, dark winters with nothing much else to do, and the upshot is a generation of bright young Icelanders ready to scour horizons for new opportunities. The negative spin says that some of the money behind their deals must come from dubious sources in Russia, but no evidence has been offered to support the rumours. Either way, like the Polish plumber and the South African male au pair, the modern Viking marauder is an archetype of the globalised economy.
Melting moments
This is not just a paragraph about trends in food retailing. This is a butter-smooth, threefinger-typed paragraph about trends in food retailing, garnished with the finest, ripest, hand-picked witticisms....
I’ll stop there, before you flick over the page — just as thousands of television viewers allegedly reach for the zapper every time Marks & Spencer’s ‘food porn’ advertisements come on screen. But however irritating, the campaign has been a huge success. Sales of the flagship £2.49 Melting Middle Chocolate Pudding, for example, have soared by 3,500 per cent. Overall, M&S food sales were up by more than 5 per cent on 2004 in the pre-Christmas period, confounding gloomy expectations. In fact, we all seem to have been eating like trenchermen this winter — Sainsbury’s served a record 19 million customers in Christmas week — but the really interesting trend is the rise in sales of luxury comfort foods such as the melting pud, and of organic produce. We now spend £1 billion a year on premium ice creams, chocolate, juices, fancy bread and bottled water — treats which apparently meet a need to counter the stresses of modern life by indulging in what gurus call ‘me time’. Likewise we spend more than a billion on organic produce, which has yet to be proved nutritionally advantageous but appeals both to self-esteem and to fear of health dangers. Add an element of ‘fair trade’, and you have a selling proposition which perfectly catches the spirit of the age. Hence the success of Green & Black’s organic chocolate, which is Britain’s fastest-growing confectionery brand and was bought up by Cadbury Schweppes last year. The Shepherds Bush-based Innocent fruit drinks company (whose website claims that ‘we mashed up over nine million portions of fruit last week’) looks like another winner, as does Eat Natural Ltd of Camberwell, which makes those delicious yogurt-coated fruit-and-nut bars now sold at every kiosk and convenience store. If I were an Icelandic raider, I would be tracking them down and waving my chequebook.
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