BY ANYONE’S standards, £3 billion is a great deal of money. That the Inland Revenue could slip up and use a figure of £13.2 billion when it should have been £10.1 billion should make the Government nervous. When the overstatement relates to pensions, then Government and the public have reason to be extremely angry and anxious.
The Revenue is not the only guilty party. It has merely compounded the misinformation provided by the Office for National Statistics. For years, the ONS exaggerated the amount of money being saved into pensions schemes through the most basic of errors, double counting. It counted as fresh investment money that was simply being shunted from one fund to another. Yet even when David Willetts, the Shadow Work and Pensions Secretary, shone a torch on the mistake, the ONS took ages to correct the figures and it then succeeded only in getting them wrong again.
It was only in July this year that the ONS made a second downgrade in the figures, admitting that there was actually a £12 billion shortfall between what it had claimed was being stashed away in pension funds and the actual sum. It now transpires that the Revenue had based its figures for tax relief on pensions not on what was actually being awarded, but simply on a calculation based on the ONS figures. Hence it, too, has been contributing to providing a falsely inflated picture of future pension provision.
Adair Turner’s view of the pensions situation, due to be published within the next fortnight, will make grim reading. But his report, and the difficulties he has had in producing it, should force ministers to take action over the ONS. Mr Turner had to battle for months to get to the numbers that would give him a true view of the pensions crisis. Ministers must ask, if this was the case in such a crucial area as pensions, just how reliable is the information that is being provided by the ONS in other sectors.
Mr Turner is said to have been less than impressed by what he found in other departments as he pursued his inquiries. There does appear to be a tendency towards undue pessimism for instance in the Government Actuary’s Department (GAD). While all the evidence shows life expectancy growing at a remarkable rate, the GAD has consistently veered towards the lower end of the scale. Such a tendency will serve to underestimate the size of the problem that Britain faces on the pensions front.
Alan Johnson, the new Work and Pensions Secretary, must be wondering what he has done wrong to be handed such a poisoned chalice. He would be well advised, at this early stage in his post, to demand that he be presented with a worst-case scenario, as well as the less frightening figures that might be available. It sounds as if Mr Turner will go some way towards this, and his report is only a preliminary one. But Mr Johnson should be able to rely on the government machine rather than outside special commissions to keep him apprised of the truth on pensions.
If an Opposition spokesman can spot the problem, as David Willetts did, there should be some in Whitehall able to do so. Those who failed in this crucial area deserve to be shown the door.
Sadly, however, the pensions expert heading for the door of her own volition is Mary Francis. She is leaving the Association of British Insurers just as pensions take centre stage in the list of public concerns. This is bad news for the industry, which will need to replace her with someone who will be taken seriously at the highest levels of government. After years in the Treasury, Ms Francis had access where it counts.
A missed bargain?
EITHER Westfield is grossly overpaying for Chelsfield or Britain’s property companies missed a bargain at the turn of the year.
As Elliott Bernerd tried to take private the company he had founded, all the big players from the property scene had the opportunity to trump his offer. Whatever qualms they may have had about the delights of owning an internet hotel — Global Switch, the business that Mr Bernerd had failed to offload — they could have reasoned that he, more than anyone, would know the true value of Chelsfield.
It is normally safe to assume that if the management think it worthwhile paying one price for a business, that is because they know it is worth more. That is why investors in DFS have done themselves a disservice in succumbing to the bullying tactics of Lord Kirkham and allowing him to buy that business.
But although Chelsfield investors forced Mr Bernerd to improve his terms, rivals did not challenge the deal. John Ritblat and Gerald Ronson are probably almost as familiar with the Chelsfield portfolio as the people running the business, such is the intensity of the watch they keep on other developers, but they chose not to make an offer. Neither did the Australian Multiplex, although it was said to have considered bidding and may be again.
Only the Reuben brothers were prepared to venture into the situation, backing Mr Bernerd in his deal. Perhaps they had not intended that it should be a long-standing arrangement but the speed with which the partnership broke down seemed surprising. That was until Westfield slapped down its offer. A 40 per cent premium earned in a matter of months shows the money-making skills that have catapulted the brothers up the Rich List.
Chelsfield has prime assets which might have been expected to attract plentiful attention. Merry Hill in the West Midlands is one of the country’s major shopping centres. At White City, Chelsfield has the opportunity to create the last major retail development likely to be allowed in London.
Mr Bernerd had seemed intent on being the man to see that project through. Instead, he now realises a hefty profit on the money that he had put into the buyout. But he may not be vanishing from the property world. Some suspect that Westfield may want to prise the gems from Chelsfield and offload the rest. Mr Bernerd may be prepared to help them.
Merck faces further pain
MERCK, the US drugs giant, stopped selling its Vioxx painkilling drug after research found that it may increase patients’ vulnerability to heart attacks. It considered, but discarded, another option: that of marketing the drug with enhanced warnings about the cardiovascular risks to those who use the drug regularly over 18 months or longer.
The immediate thoughts turn to the health of those who have taken the drug. But the fact that $25 billion (£14 billion) was instantly wiped from Merck’s market value yesterday sends a very clear, and very much enhanced, warning to the owners and managers of all pharmaceutical companies.
Merck stands to lose sales of $2.5 billion by withdrawing Vioxx from the pharmacy shelves. Profits could drop by as much as $1.3 billion. Yet even those large sums could pale into insignificance beside the cost of settling personal- injury lawsuits brought by users of Vioxx or their relatives.
The damage to Merck’s reputation, and the cost that will come if it is put off developing new compounds, may be incalculable. But it will cause headaches that require treatment with something a little stronger than aspirin.
FOR some hedge funds, transparency is an alien concept. Polygon appears to have been influenced in deciding to drop its attempts to scupper British Energy’s restructuring by demands from a US court that it should open its books. Bondholders now seem certain to take control of the company. Shareholders understandably feel aggrieved but the object of their ire should be the management who made such a mess of the company. The former chairman Robin Jeffrey has re-emerged as a power consultant — but in far distant Canada.
