SALES of MG Rover cars slid back last month as those bearing the once proud Rover marque fell by almost 30 per cent. That statistic is unlikely to have made the Chinese any more enthusiastic about doing the British Government a favour and taking the ailing carmaker off its hands.
Yesterday, continuing to brandish the prospect of a £100 million bridging loan to ease the deal, Tony Blair told Parliament that the Government would do “whatever we can” to save the company. But he cannot help the company to make up for the fact that, after years of under-investment, Rover lags behind its competitors. He cannot rid the company of its pension fund liabilities, which rightly cause the Chinese serious concern. Neither can he flout the European Union’s rules on state aid.
With an election looming, the Prime Minister might be tempted to have a try at finding ways round any of these massive obstacles, but he would be wasting his time and our money. Rover is a private sector company which, even if the deal with Shanghai Automotive Industry Corporation had gone through, would have soon been saying farewell to many of its current workforce of 6,000. Mr Blair is right to be concerned about the future of the workforce, but it is not his job to strive to keep alive artificially a business that is so clearly nearing death.
The Chinese have made clear that a six-month loan would not be enough to allay their concerns about becoming the effective owner of the business. They do not want to be responsible for the pension fund liabilities of more than £400 million that come with the company. They have sent John Towers and his chums away to produce a scheme that would prevent this.
Since Mr Towers has demonstrated a knack for ring-fencing things, generally in the interests of himself and his colleagues and to the detriment of the Rover business, he may well be the man for the job. But the new pensions regulator might remind him that pensions are not to be played with and, under the new regime, a very dim view is taken of any move which might be detrimental to the rights of pensioners. Any suggestion that MG Rover’s pension funds might somehow find themselves attached to Phoenix Ventures and not to the carmaking business itself would require the closest of scrutiny by the authorities.
Allied Domecq is a thriving business, at the opposite end of the corporate health spectrum to MG Rover. Nevertheless, the deficit in its pension fund is likely to be a major issue in the bid now being considered for the group. Pernod Ricard desperately wants the world-class brands that the group harbours, but will not be so enthusiastic about taking on its pension fund liabilities. The fund trustees have an obligation to ensure that any deal that takes place will safeguard the future of fund members. Pernod Ricard is a strong company, but it will be assuming more debt if the deal goes through.
The trustees of the WH Smith pension fund were sufficiently concerned about the leveraged nature of the mooted bid for the company that they effectively blocked the deal. It should not be a deal breaker for Allied Domecq, but union leaders at Rover, although they are currently focusing on saving the business, should not forget about the importance of safe-guarding the pension fund.
Mr Blair’s £100 million is a small amount in comparison with MG Rover’s needs, but it would be enough to catch the attention of the competition authorities in Brussels. Shortterm and interest-bearing it may be, at least in theory, but it still looks like state aid to an outdated industry.
PPF levy is double-edged
MANY pension funds have been desperately clinging on until the start of the new financial year, when the Pension Protection Fund (PPF) finally opened its doors. Lawrence Churchill, the fund’s chairman, does not know what is about to hit but is hoping that the £150 million initial whip-round from the country’s private sector final salary pension schemes will cover the first round of fund insolvencies.
Faith in company schemes ought to be reinforced by this back-up fund, at least for the majority whose pensions will not top the PPF’s £25,000-a- year ceiling for making up deficits. But the price of that is to make the good, well-run funds subsidise the bad or unfortunate ones. The whip-round is, in effect, another stealth tax on pension funds to add to Gordon Brown’s depredations.
Next year, thanks to the House of Lords, the PPF has to start raising £300 million-a- year levies based on an assessment of risk rather than just the size of fund. Mr Churchill and his colleagues have yet to devise the risk formula but want it to be based on the sponsoring company’s credit rating rather than prescribing a high-cost, safety-first investment strategy on the fund. Hefty cross-subsidies from good funds are bound to continue.
If the levy is an unfair burden on the good, it is a two-edged sword for dodgier companies, not all of which are apparent in advance. Members need the fund’s protection and the lure of cutting a fund’s annual risk premium is a healthy incentive to make a fund more secure.
Sadly, that is unlikely to be the strongest incentive facing companies with high risk ratings. Survival is often their priority. Most of the employer-guaranteed funds that are likely to totter in Mr Churchill’s direction are closed to newcomers already. Any that are not will surely soon be closed.
Higher costs also make it a better proposition for healthy companies with healthy funds to get out of their open-ended obligations while the going is good. They will move like the rest to money purchase funds that shift different risks on to employees. Many smaller firms are simply leaving pensions to their employees, stakeholder funds having understandably found only limited favour.
The proportion of people retiring with any occupational pension rose steadily for decades to 66 per cent by 1997 but has since fallen back to 60 per cent. This looks like the start of the rot. No wonder Labour is in a panic over pensions.
Grand gripes
IT SEEMS that Britain is becoming a nation of professional complainers. The tougher competition regime introduced by the Enterprise Act of 2002 made provision for new “super-complainants” to have their gripes fast-tracked by the Office of Fair Trading.
Which?, formerly known as the Consumers’ Association, and the National Consumer Council are beginning to make the most of their new powers. Thanks to their efforts, the OFT has referred home lending to the Competition Commission and is currently looking at private dentistry and banking charges in Northern Ireland.
This week the NCC spoke for many consumers when it threatened to make a super-complaint against the car repair industry. It seems unlikely that a requested meeting with the industry would allay its concerns that customers are being ripped off.
Now the OFT is about to find several more super- complaints landing on its doormat. Care home charges are already under scrutiny, but other aspects of the health sector may be the next focus of the super-complainants.
THE TIMES’s Monetary Policy Committee (MPC) voted against an increase in interest rates and it would be surprising if the Bank of England’s MPC did not do the same today. That will be a relief to Messrs Brown and Blair. They continue to chant that we have never had it so good, while evidence mounts that consumers do not share their optimism. Yesterday, jeweller Signet indicated that while its US sales were up by about 5 per cent, in the UK they had fallen by a similar amount. Girls are having to go without diamonds, surely a factor that will influence the Bank.
