As it is, the value of NTL’s offer is currently rising anyway in tandem with its share price and is now around 330p.For Branson, it makes only a small difference whether the bid is pitched at 323p, 330p or 355p since he has already said he will take NTL shares in return for his stake. Virgin Mobile would surely bite NTL ’s hand off if it were to offer 355p. That would represent a near 80 per cent premium to the price at which the company floated last year – not bad for a virtual network which owns nothing much else apart from its name and a lot of youthful but less profitable subscribers. The local consumer council is still disgusted that the gap between charges in the South-west and the remainder of the country is big and getting bigger.Anglian, for instance, which has already done something very similar to Pennon, by handing cash back to shareholders and loading its balance sheet with debt, is only raising prices by 7 per cent over the next five years.
Admittedly, Northern’s move was designed to thwart a hostile takeover bid from Trafalgar House whereas Pennon says it is merely trying to maximise the efficiency of its balance sheet. Nevertheless, Professor Littlechild concluded that the wool had been pulled over its eyes and reopened the whole price control issue on the grounds that there was clearly more spare cash sloshing around the industry than it had let on.Ofwat, by contrast, appears to be quite unfazed by Pennon’s announcement, suggesting that it would probably have made only a marginal difference to its calculations had it known in advance about the payout.Pennon has tried to buy off a customer protest by announcing a one-off rebate of £20 for every household in the region – about enough to halve the increase in bills this year But it has not been entirely successful. Pennon has now demonstrated that Ofwat let the industry off the hook.There is an intriguing parallel with what happened in the electricity industry a decade ago when Northern Electric announced plans to hand back £500m to shareholders a few short months after the industry regulator, Professor Stephen Littlechild, had set new price controls for the industry. Ofwat did not think it needed quite that much to finance its capital expenditure programme. But it still sanctioned a 25 per cent increase in charges in an area that already had the highest water bills in the country.The regulator bought the argument that shareholders in the water companies could no longer afford to bear so much of the cost and customers would have to be squeezed. The industry, so the argument ran, had already achieved all the easy cost savings it could and so bills would have to start rising, rather than falling as they had done in the past. The water industry has repaid shareholders their original capital so many times since privatisation in 1989 that no one should perhaps be surprised by the latest example of largesse.
Pennon, the owner of South West Water, has turned on the taps and is handing £200m back to shareholders.
Odd, therefore, that only nine months ago South West Water was pleading poverty. It told the regulator, Ofwat, that it needed to raise customer bills by one-third if it was going to keep Cornwall’s beaches clean for the next five years. He told MPs: “There was a framework agreement and that is now part of sector by sector negotiations.”. He said the Treasury was “running scared” of organisation such as the Institute for Fiscal Studies that had called for an independent body to date the start and end of the cycle.But Mr Brown said that would take away responsibility for fiscal policy from the House of Commons and run counter to the “whole history of parliamentary democracy”. The Chancellor played down the threat of tax increases, saying he would meet his self-imposed fiscal rules, which limit borrowing to the amount needed for public investment over the economic cycle, by maintaining “tough fiscal discipline”.Mr Brown also triggered fresh speculation he wants to reopen the deal between the Government and civil service unions that would allow current public employees to retire at 60. There was no statement with the decision and the City was left divided over whether there would be a rate cut in the New Year.Royal Bank of Scotland said it expected a cut in early 2006.
“We continue to view the risks as skewed to the downside,” said Ross Walker, its UK economist. “Growth remains below trend and there is little prospect of a rapid acceleration.” But Chris Iggo, a senior strategist at AXA Investment Managers, said: “Rates will be left at this level for some time as evidence emerges that consumer spending is recovering on the back of a stronger housing market.”The Bank is forecasting a rebound in growth next year to 2.5 per cent and over 3 per cent in the following years, although most in the City think those are too optimistic.However the Chancellor used the Bank’s figures to defend the growth and public finance forecasts in his pre-Budget report against accusations of “over optimism” by the Conservatives.David Ruffley, a Tory MP on the select committee, accused Mr Brown of using a “spin cycle” when he changed the timing of the economic cycle used to determine his golden rule. “We had to cool down the housing market and consumer demand in the economy,” he said.Mr King said last month there had been a “quite sharp rise” of 2 percentage points in the ratio of taxes to household disposable income in the past couple of years. “In the second half of 2004, disposable incomes were lower in nominal terms than a year earlier, so it was hardly surprising that households had less to spend,” he said.The Bank’s Monetary Policy Committee yesterday left the base rate at 4.5 per cent, as widely expected by analysts and business leaders. He said it was significant that rates rose four times in the run-up to a general election, which he said was the first time it had happened in living memory.”That was bound to be the major factor in affecting consumer spending,” he said. “I don’t think anybody should be in any doubt that four interest-rate rises was bound to be the major factor in affecting consumer demand in the economy.”Damian Green, a Tory member of the committee, said the Treasury was using tax rises as “old-fashioned demand management”.