BLINK and you might miss it. But in a three-word sub-clause in his article penned exclusively for
The Times Business today, the Chancellor of the Exchequer commits himself to the building of a new generation of nuclear power stations.
It is a remarkable statement, not least because it shows Gordon Brown and Tony Blair singing from the same hymn sheet on not one but two critically important issues of state. First it was pensions. Now, three weeks after the Prime Minister said that nuclear energy was back on the agenda with “a vengeance,” the Chancellor signals agreement.
There are plenty of people, many from outside the gossip-ridden village of Westminster, who believe the Chancellor and the Prime Minister fail to see eye to eye on anything any more. Lots of people think that the two men are consumed with nothing but grizzled self interest. But perhaps the grizzliness only comes out when issues of personal ambition come to the fore. Perhaps these issues come to the fore rather a lot. Perhaps they create a haze through which both men struggle to see clearly on important policy decisions. But the pensions conundrum, and the nuclear issue, are both big enough to be seen through the murk.
Agreement on these issues should be greeted with satisfaction and relief. There was more than a passing chance that Messrs Blair and Brown would leave the nuclear question in the long grass. It is far more likely to create electoral grief than joy for them. Indeed, it is likely that the electoral reaction could only ever be negative. If the nuclear rebuilding programme is sorted swimmingly, the electorate will take the achievement for granted and give their leaders no credit. If there is a foul up, however, the electoral ramifications could be disastrous. Yes, Joe and Joanna Public would be irked if they suffered power cuts or had to pay higher utility bills. Corporate Britain would be unhappy too. But plenty of politicians would bury their heads in the sand on a difficult issue such as this.
It is to the credit of Tony Blair and Gordon Brown that they are prepared to look to the longer term. Mr Brown’s support for nuclear is more significant than Mr Blair’s since he, probably, will be the one that has to turn wise words on nuclear into concrete and overhead power lines. At the same time, Mr Brown’s support for atomic energy may provide the best evidence yet that Britain really is facing an energy crunch. Even a man as principled as Mr Brown might have ducked the issue if he could.
If Mr Brown ascends, his support for the rebuilding of the nuclear infrastructure might register as one of his most enduring achievements. But no one, least of all Mr Brown, should under-estimate the size of the task of creating a new generation of nuclear capacity.
It must be as safe as it can possibly be. It cannot be assumed it will be cheap. Nor can the State expect the private sector to build the plant without considerable assistance. This assistance may not be directly and specifically financial: private sector power firms should not need grants to build generators or government commitment to pick up the bill for nuclear clean-ups. But private sector generators will need assurance that the regulatory framework will be enduringly consistent. They will also need to know they can rely on steady demand for the nuclear electricity produced.
Buying time
KEVIN LOMAX has several reasons for wanting to lead a management buyout of his Mysis software group. He is leaving the board of Marks & Spencer, where he has played a controversial kingmaker role and left a munificent package for management. He has also had a series of brushes with City investors over Mysis.
As a result, Mr Lomax has lost the chairmanship. He has had to withdraw a golden handcuffs scheme to retain two potential successors and suffer the slings and arrows of fund managers after profit warnings from the normally solid group.
For all concerned, it matters that Mr Lomax and his would-be buyout colleagues do attract finance for an offer and go ahead with one that the other directors can back. Suggesting a buyout to stimulate interest or to attract another bidder would be a dangerous game; in the City, a company up for sale that few want is a potential dog.
Roman lesson
MARTIN SORRELL, the ebullient chief executive of WPP, may or may not have been too ebullient with one of his Chinese partners and the financial implications may or may not add up to a row of beans. But the episode sends a useful reminder that codes of business conduct are not universal. Even if the Western codes of business conduct are superior, it could be unwise to inflict them on others. When in Rome, do as the Romans. When dealing with Romans anywhere, best results will come to those working in sympathy with Romish ways.
Private equity can hold its own
PRIVATE equity and hedge funds rank top of central bankers’ worries as they try to work out how the sharp falls in share prices might break through the defences of the international financial system.
For hedge funds, the top risk is making catastrophic bets, as Long Term Capital Management did in 1998. For the rapidly growing private equity sector, however, there is a fear that the wheels come off the commercial model they use.
The classic technique is to buy a company and finance it overwhelmingly with debt or mezzanine finance, forms of quasi-debt. Then management beefs up returns in the permissive privacy of private ownership before selling to crystallise profits, say three years later.
This cycle has three key weak spots: sources of finance could shrink as interest rates rise; the costs of debt could jump: or the exit routes could dry up. In a period when stock markets are tumbling round like a washing machine and short-term interest rates are rising more than expected even a couple of months ago, beady eyes are trained on two of these three weak spots.
Institutional investors are turning their noses up at flotations leading to several — including Blackstone’s Cineworld — to be shelved. But others, including Southern Cross Healthcare, also from Blackstone, are going ahead. In the UK, in any case, the majority of sales by private equity groups are to other private equity groups, a process likely to be encouraged by the vast amounts of new money taken in this year. The sector survived three years of bear market quite well. It ought to take a short, sharp shock in its stride.
