In the City
Cassandras clutch at straws
Jock Bruce-Gardyne
What is this we hear? Could it be the sound of straws being snatched at? Last weekend Mr William Keegan of the Observer newspaper, who for four years past has made Cassandra seem a cock-eyed optimist, sought recourse to the picture of contemporary Britain conjured up by Paul Theroux, an American railway nut: 'The great branch railway system — the machine that had been set down in the garden and left it undefiled -- was shutting down. You could no longer "get there from here". England was reverting to its pre-industrial condition . . .' And the CBI in Glasgow, we were warned elsewhere, had been driven by squeamish toadyism to suppress a mo- tion calling upon it to 'note with alarm the continuing serious economic depression and social deprivation' submitted by — wait for it —`a big North-West estateagency'
Now I recall a splendid piece of nostalgia from the pen of Messrs Flanders and Swann about the disappearance of country stations with poetic names. But that was when Messrs Theroux and Keegan were still in small clothes, Mrs Thatcher was keenly seeking a parliamentary lodgement, and monetarism had not been heard of since the 1930s. Counsel for the prosecution who call Paul Theroux and North-West estate agen- cies into the witness box give signals of desperation.
And small wonder. For four years past they have been threatening us — and many members of the CBI were continuing to echo such threats in Glasgow — that there could be 'no light at the end of the tunnel' unless and until the Government had first 'primed the pump' (yes, I am afraid they do so mix their metaphors). Not only has the Government refrained from 'priming', but in 1981, in defiance of all the conventional wisdom, it sharply increased taxation in the depths of the worst recession since the 1930s. And real interest rates have been maintained at higher levels than we have known for thirty years.
Yet what do we behold? Output is now estimated to have been growing by about 21/2-3 per cent a year since the first half of 1981. Since 1980 output per person employed in manufacturing has jumped by more than 18 per cent. The consumer spen- ding boom continues in defiance of expec-
tations. Pay settlements are currently estimated to be running at a little below 51/2 Per cent, and manufacturers' unit costs are rising by less then 2 per cent a year — the
lowest rate of increase since the figures were first compiled. The current account is in
surplus — only just but nevertheless excep- tionally at this point in the business cycle. Looking to the future, the CBI's own latest survey reports a substantial balance of
firms expecting to increase their output for the ninth month in succession, and once again the Treasury's own cautious forecasts on inflation — 6 per cent to mid-1984 — are beginning to look as if they might be pessimistic. Most astonishing and perverse of all, unemployment has begun to fall. Marginally, desperately marginally, it is true: but then when all those magic pro- grammes of public spending to 'prime the pump' from Peter Shore, the SDP, the TUC and Ian Gilmour were force-fed through the Treasury's long-suffering model a year ago, their impact on the dole queues over time was hardly more im- pressive, even if their improbable assump- tions were taken at face value. This is not to say that all is well. Wage settlements still look too high to be com- patible with the sort of sustained profit recovery that is needed — and one can only thank God that such lunacies as the pay- ment of an extra 71/2 per cent to surplus firemen in obeisance to a formula cooked up by Jim Callaghan to escape a spot of bother in the 1970s can nowadays pass un- noticed by other negotiators. Tuesday's provisional money supply figures cast a heavy damper on recent euphoria about funding progress to mop up the high levels of public and private borrowing, and sug- gest that Barclay's recent caution about the outlook for interest rates was too easily dis- missed. The battle to win back lost market share at home and overseas makes stodgy progress, and when the Society of Motor Manufacturers and Traders celebrates the import share of the UK motor market pass- ing 60 per cent by renewing their call for abolition of the car tax it is tempting to ask, as the man surveying Whitehall did of the Foreign Office, which side are they on? But let us not sound too censorious while Government is still hell-bent on paying Nissan upwards of £.100 million to put its cars together with a Union Jack on them.
Maybe the Nissan trade unions will save Nigel Lawson's bacon in this respect. He may need it. For clouds still lurk above the plans for disposal of the assets to diminish next year's Budget deficit. We have Ken- neth Baker's word for it that the BT sale will go ahead next autumn on schedule, and it would be an awkward snub if it didn't. Yet passage of the necessary legislation will involve a lot of argument, and BT's retain- ed monopoly privileges will call for con- siderable refining if it is to accord with Financial Secretary John Moore's latest definition of the case of privatisation.
Then there is British Airways. Lord King is evidently determined to crown his con- siderable achievement in knocking it into commercial shape with a listing also come the autumn. Something is going to have to give if both equity and gilt-edged markets are not to experience alarming flatulence. Moreover tidying up BA for the market poses delicate choices.
Sir Adam Thomson of British Caledo- nian offers a straightforward solution. Let BA be required to sell a number of its premium scheduled routes and have them transferred to Gatwick, and BCal will turn a blind eye to the prior write-off of the bulk of BA's debt. To which Lord King replies 'pull the other one' — understandably. But the private sector airlines' case against a comprehensive cleansing of the BA balance-sheet is a strong one: private firms cannot find fairy godmothers in No 10 to wipe away their debts on the grounds that their present managements were not responsible for the errors that accumulated them. Yet ingenious schemes by which the debts would be repaid to BA's commercial creditors by way of a government- guaranteed flotation would, in the Treasury's eyes, frustrate the whole pur- pose of the operation by transforming BA's shares into substitute gilts. So an answer to this conundrum compatible with a 1984 flotation is not easily discernible, unless Lord King can pull off a coup in Downing Street — and if he does, Sir Adam Thom- son and his allies can be relied upon to make trouble.
As far as the City is concerned, however, all this is in the future. There has been plen- ty to talk about a good deal nearer home. The bulldozer is now working overtime on the hedges which hitherto compartmentalis- ed the City. Mr Jacob Rothschild had hard- ly had time to collect the plaudits for his marriage with Charterhouse than attention switched to Citicorp's effective acquisition of Vickers da Costa. This certainly looks a splendid deal for the Vickers management, which has managed to quintuple the price- tag put on its buy-out in little more than five years. There do seem to be one or two 'bridges' (the Vickers chairman, Sir Ken- neth Berrill's word) yet to be crossed with the regulatory authorities, notably in Tokyo. But the wind of change in the finan- cial markets is already gathering hurricane force, and it is comforting to know that the Bank of England is 'fully behind' these developments. Quite a long way behind.
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