I admire the Chancellor for his clarity of mind and his coolness under fire, but I don’t believe a word of his forecasts.
I didn’t even believe the forecasts he read out on Tuesday from the independent Office for Budget Responsibility, and I’ll hazard a guess that the Chancellor wasn’t really putting much faith in them either. The key predictions of 0.9 per cent growth this year and 0.7 per cent next year, and all the borrowing numbers that flow from them, depend, he was careful to point out, on whether the eurozone finds a way through the current crisis: ‘If they don’t then the OBR warn that there could be a much worse outcome for Britain.’
And — though he didn’t say all this — they also depend on what happens to energy and food commodity prices, on whether we have another icy winter, on what happens next in the Middle East, and on whether we’re heading into another full-blown credit crunch. The only thing we can be sure of is that the numbers will be revised, Ed Balls will go on roaring and public sector unions will go on making trouble — until, one day, the revisions are in the right direction.
‘In one phase men seem to have been right, in another they seem to have been wrong. Then again, a few years later, when the perspective of time has lengthened, all stands in a different setting…’ Churchill said in his eulogy for Neville Chamberlain. ‘The only shield to [a man’s] memory is the rectitude and sincerity of his actions.’ So it is with George Osborne. I’m not saying he’s a saint or a Boy Scout. Far from it. But right now, the sincerity of his fiscal rectitude is our only shield from the sovereign debt storm.
It’s pointless to attempt judgment as to whether his credit easing and infrastructure funding will make the difference between flatline survival and outright depression, or whether scrapping the fuel duty increase and holding down rail fare rises will brighten the wrist-slashing mood of the consumer. There are too many external factors. What matters this winter is that markets believe Osborne is determined to wrestle with the deficit — and if he can continue to hold the market’s confidence he will have done the nation a great service. Just before his Autumn Statement, the yield on ten-year gilts edged down a fraction to 2.2 per cent. The same day, Italy — which not long ago was borrowing at cheaper rates than the UK — struggled to auction a bundle of ten-year bonds at 7.6 per cent. Those are figures I do believe in.
Icon of instability
Asked in PMQs last week about his attitude towards a more localised financial crisis — the one afflicting the holiday operator Thomas Cook — David Cameron replied that he was looking to Vince Cable’s department for reassurance that ‘this iconic and important British business… is in a good, healthy state’. Such a sentiment must have come as a surprise to managers of other iconic and important British businesses who feel they deserve more sympathetic attention from Downing Street — not least because in ownership terms, Thomas Cook has been more German than British in recent years. And what its chequered history really offers is a parable of corporate instability and failure to keep up with the times.
That’s not to say old Thomas himself wasn’t a great British innovator: his big idea, in 1841, was to organise railway outings for fellow temperance campaigners from Leicester to Loughborough at a shilling a go. But by 1845 he had gone bankrupt, and although he started again it was his son John Mason Cook who built up the international travel business with which the family name became synonymous. The next generation sold out to the Franco-Belgian Wagons-Lit company — whence Thomas Cook and Son passed after the second world war into the hands of nationalised British Railways. Run like a civil service department, it completely missed the trend towards cheap package holidays in the late 1960s and had to be rescued by a consortium led by Midland Bank. The next owner was the Westdeutsche Landesbank, and control eventually ended up with a German department store group called Arcandor that went bust in 2009, its Cook shareholding being distributed among its creditors.
Meanwhile, as turmoil gripped the travel industry over the past decade, Thomas Cook grew into an increasingly debt-laden conglomerate. It swallowed one package-holiday brand after another — including the troubled MyTravel — plus high street agencies such as the Co-op chain, all in defiance of consumer shifts towards bespoke travel, online booking and low-cost flights. Cook’s historic travellers cheque business declined, its own airline operation was anything but low-cost, and its finances seem to have spun out of control, precipitating an assault by short sellers and a collapse of the share price. Cook’s shareholders are nevertheless lucky that the company’s bankers came up with a £200 million rescue facility at the weekend, and when the prime minister does receive a report it seems unlikely to include the words ‘good’ or ‘healthy’. All in all, it’s enough to have driven Thomas the founder to drink.
Potash watch
Like my celebrated silver tip this time last year, my item about potash and ‘dark matter’ under the North Yorkshire coast seems to have started a bandwagon rolling. Adjacent to the Israeli-owned Boulby Mine which I recently scouted, another company has staked out rights to deposits of the potassium-based fertiliser under an onshore and offshore area of 240 square miles. This is Aim-listed Sirius Minerals, which declares its mission to become ‘the world’s new potash powerhouse’ and believes it could be sitting on billions of tonnes of the stuff. The stockmarket seems to think so too: the share price has multiplied five times in five months. My man on the cliffs with the big binoculars says there would have to be something pretty amazing down there to justify the valuation — but in an investment vista as bleak as the wintry North Sea, Sirius is a stock to watch.
Comments