The worst reason for persisting with a botched or ill-advised construction project is the familiar one: if we stop now, all the money we’ve spent is wasted. The proponents of London’s “garden bridge”, which has finally been scrapped, have managed to get through £46m before actually building anything, which rather puts their published estimate of a £200m construction cost into perspective.

Mervyn Davies, the former banker who chairs the bridge trust, promises to “account for every line” of this impressive spending. That should at least provide an insight into how this doomed venture managed to eat so much public money with so little to show for it. The analysis might tell us why the construction contracts were let in March last year when it was already obvious that the financing was in trouble, and despite the continuing uncertainty about landing rights – a rather important consideration for a span over a river.

This bridge was a vanity project from the start. As the FT’s Edwin Heathcote pointed out, the fashion for abundant foliage in artists’ impressions of buildings can also disguise design flaws. The empty promise of a “public garden” which persuaded the City planners to allow the walkie-talkie, surely London’s ugliest recent building, is not a good precedent.

We should be grateful to Margaret Hodge for her cold-eyed analysis of the bridge, and to London mayor Sadiq Khan for spotting that the construction cost was only the down payment. Once built, the bridge would leave taxpayers on the hook for the inevitable substantial maintenance costs. Its demise should encourage another river crossing downstream, out of sight of the celebs behind the project, but where one is actually needed.

One of Denis Healey’s first acts as Chancellor was to scrap Edward Heath’s vainglorious trio of projects – Concorde, the channel tunnel and the estuary airport – with a much-needed beneficial impact on the public finances. Philip Hammond’s trio is HS2, Hinkley Point and so-called smart meters. Stopping these ill-starred projects now would be painful, but money well spent.

Severe weather warning

During the era of privatisation under Margaret Thatcher, the pension obligations of the newly-spawned companies were clouds no bigger than a man’s hand on the distant horizon. The potential liability of the new shareholders was too far away to worry about, or in the case of water and electricity, the smaller workforces made any problem manageable.

A generation on, and the rain has arrived. This week the Tata group concluded a painful year of negotiations for the 130,000 members of the £15bn British Steel pension fund by giving it a third of the UK company and £550m. Even this would not meet the previous promises, and has been agreed only because the alternative was worse.

Over at British Telecom and IAG, British Airways’ owner, the deficits on the obligations inherited from the state are threatening the dividends, if not quite the viability of the enterprises. The more recently-privatised Royal Mail is in bruising talks to find a compromise between punishing posties and sustainability.

The numbers are large, but look small compared to those for the University Superannuation Scheme. Its £17.5bn actuarial deficit is an unwelcome record, overwhelming the 2014 plan to fix it, which itself demanded total contributions of 25 per cent of salary from members and employers.

The problems at all these funds are manifestations of public sector pension promises made decades ago, and are harbingers of what we can expect for those still employed by the state and its arms. Any threat of bankruptcy here looks distinctly unconvincing, so the taxpayer will pay, and we should at least be grateful for shareholders in the privatised industries saving us their part of the bill.

You owe it to yourself

The world’s central banks now own a fifth of their respective countries’ national debt, after seven years of quantatitive easing. The central banks are owned by the states whose paper they are holding, so the ultimate owners of all the government debt are the governments themselves. If you owe something to yourself, in what sense do you owe it? Answers, please, to M Carney c/o Bank of England, EC2R 8AH.


This is my FT column from Saturday

The Infrastructure and Projects Authority has kindly brought us up to speed with the government’s major projects portfolio, worth a handy £455bn. The annual report is a cheery, upbeat document, with encouraging examples of things that are going well, like the Super Connected Cities Programme (who knew?). It’s not until you reach the pretty colour-coded summary of all the projects that the uncomfortable truth emerges.

The authority shades these from dark green (textbook) through green (OK) to amber (significant problems) amber/red (it’s all going wrong) and red (no realistic chance of success). Few projects are red. They include new reactor cores for nuclear submarines, the perennial problem of the A303 at Stonehenge, and the M20 lorry area.

None of these moves the dial on public spending. One that does in the amber/red category is the HS2 rail link, that vanity project to connect Birmingham faster for the few at the expense of the many. It’s particularly rich that the authority’s latest verdict should coincide with transport secretary Chris Grayling scrapping three modest rail electrification plans (all also amber/red). As Private Eye has been warning for years, Network Rail never had a hope of meeting its commitments, so Mr Grayling is punishing it by restricting the state-backed company to maintenance rather than capital projects.

The money sink that is HS2 goes ahead, apparently, despite generous payoffs to executives before a rail sleeper has been laid. Should this project obey the definition of a builder’s estimate – a sum equal to half the final cost – as one rail expert expects, the bill will be over £100bn.

Surely not, says Mr Grayling, just look at the London Olympics, which shows that at least the transport secretary has a sense of humour. The final cost there was almost four times the initial estimate. The award of a major HS2 construction contract to Carillion, a company whose liabilities exceed its assets, suggests ominously that if the company’s bondholders do not rescue it, the taxpayer will.

Then there is Hinkley Point. Did you know that it’s all going swimmingly? It’s rated dark green, meaning “Successful delivery of the project on time, budget and quality appears highly likely.” This is the nuclear power station that nobody wants, and the subject of (another) damning report from the National Audit Office.

Hinkley Point promises financial misery for the owner, the contractors and finally to every British business and household through higher costs for electricity. The owner, EDF of France, is in poor shape financially and struggling to make its home-built prototype comply with escalating safety regulations. It has just added two years and £1.5bn to the estimated Hinkley start-up date.

Britain’s nuclear policy dates back to 2008, an age when the oil price was only going to rise. Nine years on, the world has changed. The combination of abundant oil and gas and rising regulatory costs have sounded the death knell for big nuclear fission plants.

The NAO now estimates the Hinkley Point subsidy at £60bn, locking Britain into high energy costs at a time of world abundance, with a devastating impact on competitiveness. The calculation, on the government’s estimates of fossil fuel prices, that a three year delay will actually save consumers money is a demonstration of how barmy this whole fiasco has become.

Thanks to the sleight-of-hand, otherwise known as a “contract for differences” with EDF, this financially radioactive project does not appear as a liability in the public accounts. The pain will appear in electricity bills. It’s a pretty brutal way to persuade us to use less energy.



The analysts at RBC Markets were quick out of the blocks last week, to explain why the Fevertree results were even better than they anticipated. This mixer drinks company is a wonder of the age, and RBC reckons it is worth its current £2.2bn price tag, or over 20 times its last 12 months’ revenues. So much sexier than boring old Britvic, currently valued at £1.8bn, or about 1.3 times its 2016 sales.

Holders might be comforted by RBC’s research, especially if they didn’t have to pay directly for it. Well, not for much longer. The leviathan lumbering down the track is the Markets in Financial Instruments Directive, Mifid ll, 1.4m (and counting) paragraphs of Brussels-borne consumer protection.

Seven years in the drafting, Mifid ll is supposed to make markets more transparent. From the reasonable premise that you should pay separately for dealing and research (for example) comes complexity that from next January will add more costs, and which threatens to make the markets more opaque, rather than less.

Today’s sellside research from banks and brokers is like advertising: half is wasted, but you don’t know which half. Much analysis is available free (the best of it on FTAlphaville) but from next year only the fund managers who have paid will see it. The banks want to charge up to $1m a year for their output, which looks ambitious given that much of it is today simply binned unread. Doubtless the economics stuff will remain free, but it’s little better than guesswork anyway.

Still, all is not lost. The analysts may have access to a company’s CEO, but this is much less useful that it used to be. Executives are so nervous of the insider trading rules, fearing that anything new said to an analyst might need a public statement, that conversations can yield little insight.

Besides, much brokers’ research is lightly disguised marketing material, designed to keep the company happy and to ensure access. At the same time, corporate information is freely available through company websites and Investegate. Research paid for by the company, through the likes of Morningstar and Edison, is obviously not objective, but it’s better than nothing.

Many buyers of Fevertree shares will not have consulted sell-side research before trading. It’s listed on AIM, with inheritance tax breaks for investors, so buying at any price makes sense as long as it holds up longer than you do. You might note that Tim Warrilow, one of the founders, has sold a slug of his stake.

The road to Mifid ll was paved with good intentions. Yet as with other financial directives from Brussels, its authors had no real interest in learning whether their proposals would help the London market. The result is complexity almost beyond human grasp, and compliance costs that outweigh any gain for the customers. Lest we forget, it’s one reason why we voted to leave the European Union last year.

Repent at leisure

In politics, if you make a sweeping promise, make sure you’re gone before it’s due. George Osborne’s promise to balance the Budget by 2015 always looked like a fantasy, even though he had not expected to be gone before the reckoning arrived. Philip Hammond has kicked that can as far down the road as he dare. He has no idea how his latest balancing feat will be achieved, but can take comfort from knowing he will be gone before it becomes obvious that the latest target of 2025 will also be missed.

This week saw another fine example, in the promise to stop the sale of petrol and diesel cars by 2040. This shameless toadying to the green lobby threatens upheaval and economic destruction, but nobody in power today will be answerable when the bill arrives. As John Dizard argued eloquently in the FT, battery technology advances incrementally. Unlike microchips or antibiotics, there are no “breakthroughs”. Range anxiety will hang over electric cars for years to come.

The mother of all feel-good promises remains the Climate Change Act. This commits Britain to cutting carbon emissions by 80 per cent by 2050, and in the nine years since it became law, passed almost unanimously by parliament, only trivial progress has been made, while the assumptions behind it look ever more unconvincing. Not their problem, though.

This is my FT column from Saturday

Dear Mum

I’m sorry this letter is so long. I didn’t have time to write a short one.

This is the essential paradox of productivity, and why it is so hard to measure. It’s easy to count the output of widgets per man-hour, if widget-making is what you do. It’s less easy when your new, super-widget is dearer to make but lasts twice as long. When it comes to the productivity of, say, a sales assistant in John Lewis, it’s getting quite hard.

That assistant’s chairman, Charlie Mayfield, has launched a productivity crusade far beyond the widely-admired group of stores he heads. British workers are only four-fifths as productive as German ones, and Sir Charlie’s government-backed campaign calculates that better practice could add £130bn to the UK economy.

This is quite a prize, but to win it, we’re told, requires “better quality leadership”, a motherhood-and-apple-pie aspiration which takes us no nearer to the line. It’s another slippery concept, like productivity itself. More rules may comfort the regulators of life assurance companies, but the cost is borne by shareholders and savers. That sounds less productive.

Expanding banks’ compliance department may improve the quality of leadership, but they have been a drag on national competitiveness since the crisis. Fortunately, as Patrick Jenkins argued here, that may be starting to change.

On the other hand, where once it may have taken a day in a library to discover something useful, or a struggle round the shops to find an unusual product, now it just takes a couple of clicks. That certainly feels a lot more productive, whether or not it’s in the statistics.

If measuring productivity in services is tricky, measuring it in the public sector has hardly begun. Free services give no pricing signals, and while there is plenty of diagnosis of the problem, the few attempts to measure it suggest it is falling.

Convention dictates that improved productivity is the only way the population can become richer, as opposed to growing the economy by more people working. Employees are understandably nervous that improving productivity means they must work harder, or that a business reckons it can do without some of them. Britain’s impressively low level of unemployment looks uncomfortably like the other side of the productivity coin.

It’s not easy. Unlike the webloggers, newspaper writers are constrained by space. Does that make me more productive, or less?

Never learning

The survival of John Fallon as CEO of Pearson is one of the wonders of the City. His policy of throwing everything overboard to prevent the ship marked USS Education sinking gives a rather different meaning to the company’s slogan of “always learning.” The list of disposals is long (including the FT and another slice of Penguin) and, judging by the prices he gets, he’s a fine salesman.

Unfortunately, his focus on selling textbooks to American students looks ever more like a high-stakes gamble where the odds are stacked against him.  The pesky students have discovered the internet, and those who prefer hard copies are buying them second-hand off the web. Who’d have thought it?

The result is a share price at its worst since the financial crash, and a dividend that is unsustainable. A muddled presentation announcing the Penguin deal left analysts trying to work out how much might be sustainable, and coming up with around 16p, against last year’s 52p.

Surveying the dwindling stock of businesses left to sell, Salesman Fallon might conclude that trying to get a good price for the whole thing is his last option. Perhaps we will find out with the results next month.

Oiling the wheels with fudge

The Financial Conduct Authority is getting it in the neck over its decision to bend the listing rules to accommodate the world’s biggest-ever new issue, Saudi Aramco. Fortunately, it can point to its creation back in February of an “international” class of listing which the domestic tracker funds would not be obliged to buy. Honour is satisfied all round, and London retains its international relevance. Best not to call these listings the “fudge” class, though.

This is my FT column from last Saturday (with apologies to both readers for the delay in posting).






Ah, electric cars. Just imagine. Quieter cities, cleaner air, and motorway service stations even more ghastly as bored drivers mooch about waiting for their car to charge. Volvo drivers can look forward to being super-smug after Geely, the marque’s owner, announced that it would stop making non-electric models in 2019. The idealistic Macroniste government in France wants to go all-electric by 2030.

By 2025, we are told, a third of car sales in Europe will be electric, with world sales totalling 13m, according to one of those exponential graphs which forecasters love. All-electric cars are inherently simpler, and thus cheaper to build than today’s internal combustion vehicles. Batteries are improving, always assuming there’s enough lithium and cobalt to meet demand.

It’s a pretty picture, but there are a few stones in the road. For a start, UK fuel tax on those beastly petrol and diesel cars raises £28bn a year, about the same as council tax, and is projected to rise to £40bn by 2030.

Electric cars, by contrast, depend on government help. Miraculously, it seems they do not cause congestion, which is why Toyota’s Prius hybrid is the Uber driver’s car of choice in London. In Denmark the removal of grants to buyers has seen a sharp fall in sales.

The subsidies don’t stop there. Wind farms and solar power generators also attract taxpayers’ money, while electricity from nuclear fission will never make a commercial return.

Even if all the incentives are phased out, the challenge of remaking the national grid to cope with demand from charging points has hardly been considered. The energy transfer at a busy filling station is about equivalent to the output of a mid-sized power station.

Electric cars are nowhere near as green as they are painted. The process of turning a primary fuel into electricity, transporting it to the power point, charging the battery and finally turning the wheels, uses much more energy than refining and burning oil. Electric cars are clearly gathering speed, but it is thanks to politics, rather than economics. Their arrival as a mass consumer item promises a severe pain in the wallet for all those who are not actually driving them.

When is a loan not a loan?

Public Finance #1: You are the UK Chancellor, and you replace student grants with loans. Does this a) cut government spending b) store up big trouble for your successors or c) ensure that students will suddenly decide to vote (against you)? Candidates answering a) will fail, while those answering c) are invited to consider switching to Politics.

It seems obvious that replacing a grant with a loan must help the public finances. A grant is money gone, while a loan should come back. Thanks to a little care in structuring them, the loans wipe £5.7bn a year from Britain’s public sector deficit, while the cash has boosted university finances and allowed vice-chancellors to pay themselves like business executives.

The Institute for Fiscal Studies has been picking these loans apart. The debt now stands at over £100bn, rising at £17bn a year, of which less than £1bn counts as government spending. The average graduate sets out for employment with a debt of £50,000 bearing an interest rate that beats inflation. Repayments are structured so that the lowest-earning graduates will see the debt written off provided they stay poor for 30 years.

The IFS reckons that only a quarter of graduates will ever pay off their loans in full. The rest will struggle to qualify for a mortgage, while finding ever more ingenious ways to avoid payment, including voting for a party that promises to scrap them, at a cost of £11bn a year. Full marks, then, for Answer b).

Psst…there’s a takeover coming

Four-fifths of last year’s takeover announcements caught the market by surprise, with no suspicious trades ahead of the news. That is the PR spin the Financial Conduct Authority might put on its findings that 19 per cent of deals were preceded by activity which smelled of insider trading. Everybody believes that this business still goes on, despite the FCA’s efforts at “market cleanliness”. Sadly, there are no statistics for suspicious trades which moved prices in anticipation of takeover stories which turned out to be untrue.

This is my FT column from Saturday

Did you notice White Elephant Week? There was a veritable parade of these unendangered animals over the last seven days, all displaying the common characteristic of an appetite for cash that befits their size, and an inability to produce anything worthwhile.

First came the wonderful salute to a lost empire that is the Queen Elizabeth aircraft carrier. Conceived as a job-creation exercise for his Scottish homeland by Gordon Brown,  this magnificent ship may one day boast some aircraft, if they are not needed for the air show industry. Given the cost over-runs and the plunging pound, it’s unlikely the UK would be able to afford more than a couple of the 42 F35s on order. That would be one for the Queen, and another for the Prince of Wales, her sister ship promised for 2020. But chin up. Mark Cox calls them “a cause for celebration”.

Next comes the dear old jumbo that is Hinkley Point C, at this very moment desperately trashing some Somerset countryside in the hope that we’ve started so we’ll finish, even though finish will be sometime or never. Once upon a time, this nuclear power station was going to be generating this year, but this week the operator, EDF, admitted that 2027 is its current best guess. Oh, and it will have to replace the top of its prototype in France quite soon after starting it up. Best of luck with that.

Finally, bringing up the rear comes the baby, the satirically-named Smart Meter. Even when it’s offered for free, one in five of British consumers say they don’t want one. Understandably, they fear cybersecurity risks from devices that transmit their data over the airwaves.

Alas, the meters are neither free nor smart. The cost, between £200 and £300 a pop, will be sneaked into bills in the manner pioneered by green subsidies, in the hope that the electricity companies will be blamed. The meters are almost as smart as the old night storage system, since all they do is tell you how much juice you are using. The experience with water meters, which produce an initial drop in consumption before it returns to the previous pattern, has been ignored.

All these fine animals come with eleven-digit price tags. What a circus!

Off track

Active fund managers are a rip-off. Put your money into an index fund. This is not quite a fair summary of the Financial Conduct Authority’s final report into the fund management industry, but the theme runs through it. Margins are too high, there is no price competition and the real level of charges is impossible to see. Oh, and don’t even think about performance.

Most of this is fair comment but trackers, currently multiplying like viruses, are hardly any better. They cover ever more exotic sub-sections of the markets, making consumer choice almost as hard as picking shares. They must churn their portfolios to balance buyers and sellers and changes to the index they are tracking. Underperformance is inevitable.

The index constituents are themselves selected by an arbitrary, and sometimes opaque, process like that which embarrassingly propelled ENRC into the FTSE 100. That the industry needs reform is clear from the two pages of funds listed in the FT, many of them chasing the same occupants of the preceding half page of our share service.

The FCA report has summarised the problem, as if we didn’t know. It has also exposed the murky world of investment consultants, which richly deserve to be despatched to the Competition and Markets Authority. The whole industry would work better for its customers with disclosure of real costs and better governance inside the funds, but encouraging investors into trackers is merely a counsel of despair.



Philip Harris, 57 years in the business, retired from Carpetright in 2014. His son, Martin, followed him into carpets in 2015 with Tapi, opening next to the most profitable Carpetright stores. Its current chief executive, Wilf Walsh, reported some grim figures this week, explaining: “They’ve not opened against the stores that don’t make any money.” Wilf, you haven’t quite got the hang of this, have you?

This is my FT column from Saturday.



It’s not much of an endorsement when a major shareholder announces a sale of your shares with the price at a five-year low. It’s even worse when your company takes half the stock itself. The company here is BT, the vendor is Orange and the shares the leftovers from the purchase of EE, itself a shove-together of T-Mobile and Orange UK.

These are unhappy days for Gavin Patterson, the man who looks like Hollywood’s idea of a CEO. Indeed, short of the regulator forcing the company to divest Openreach, its wires business, almost everything else is going wrong.

Following an accounting scandal in Italy and troubles with BT’s public sector business, there is our growing reluctance to pay more to speed up superslow broadband. Even the footie is not what it was. The great British couch potato had seemed impervious to price rises, encouraging Mr Patterson into a bidding war with Sky for the rights. Now, it seems, our appetite is not insatiable after all, as Sky reported a 14 per cent drop in the average number of viewers per game.

Saeed Baradar, of brokers Louis Capital, concluded last year that BT had no chance of recouping its investment and urged shareholders to sell. This month’s departure of BT’s head of TV, Delia Bushell, three months after spending £1.2bn on football rights, suggests he was right.

BT still hopes to raise its dividend by 10 per cent a year, but even maintaining it is starting to look like a stretch. And looming over everything is the vast pension liability from BT’s days as a public sector business.

Mr Patterson has already forfeited his bonus. Jan du Plessis joined the board this month, slated to become chairman in November. The first line of his official biography issued by BT notes that Mr du Plessis “oversaw the appointment of a new CEO in 2013, as a consequence of Rio Tinto’s first-ever annual loss”. Mr Patterson may soon be calling a Hollywood agent.

Argentina to default (but not yet)

If investors want to lend you money for 100 years, it looks rude not to take it, even at a yield of 7.9 per cent. After all, everyone on both sides will be long gone well before the stock is due for repayment. Argentina desperately needs the money, while the lenders are gambling that  things there will keep improving enough over the next few years to keep the stock up to par, or even better.

And yet…if ever there was a triumph of financial hope over experience, this is surely it. Two centuries ago Argentina offered Britain the Falkland Islands in return for debt forgiveness (the offer was turned down on the grounds that Britain already owned them) and the last century has seen debt crises in 1930, 1955, 1976, 1989, 2001 and 2014.

Those in charge of the sovereign wealth, private portfolio, pension and bond funds who constitute the buyers of such bonds nowadays will hardly care about history. The banks will collect their commissions and move on, while the fund managers will point to a lucrative income stream and Argentina’s improving economic management.

Say, for the sake of argument, that this time it really is different, and the next default is 12 years away. By then, the holders will have received $95 in interest payments on each $100 invested. A buyer of 12-year US Treasury stock will have received $30. So the Argentinian debt would have to be worth less than 35 cents on the dollar for the buyer to have done worse, even ignoring the time value of the higher interest payments. Not such a bad bet, after all.

More forward guidance

If Mark Carney and the Monetary Policy Committee had not halved Bank Rate in his post-referendum panic, would they be contemplating a cut now? The answer is obvious,  but Mr Carney is stuck with the political reality that to raise it back to 0.5 per cent is dynamite in this month of disasters. His chief economist Andy Haldane can take a more objective view. Put it down to continuing the process of softening us up for the inevitable rise. But if, as his boss says, now is not the time, when is?


This is my FT column from Saturday