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Tuesday, May 17, 2005

Wisdom Bits from Old Blighty

Telegraph | Money | City comment
City comment
Edited by Neil Collins (Filed: 17/05/2005)

Resurgent Post Office is ripe for under the counter privatisation

Allan Leighton is seldom short of a good idea, and when he's short of a good one, he'll certainly produce an interesting one. Whether his plan for the Government to sell the Post Office to its workforce is the former or the latter remains to be seen, but nobody who knows him would rule it out entirely.

Today the business reports its results, which will show just what a combination of common sense management and the ability to impose monopoly prices can do.

In addition to bonuses all round, the dramatic improvement raises the possibility of borrowing enough in the market to tempt the Government to reconsider its manifesto pledge not to privatise the business. Since that was put in to pacify the former colleagues of Alan Johnson, now Secretary of State for whatever-it's-called, and his former colleagues rather like the idea of owning the Post Office, that may not be too much of a problem.

If Labour has learned anything in eight years, it is surely that governments are useless at running things, and even giving the PO to its workers would probably be in taxpayers' interests in the long run. It can't be seen to do that, of course, which rather rules out the John Lewis solution, since its original owner gave it away. Nevertheless, there are several options for a financial structure between complete state ownership and conventional plc, and while Network Rail has given one of them a bad name, don't underestimate Mr Leighton's powers of persuasion.

Greenpeace tests its 4x4 off the wall capability

Fresh from clambering about on the battlements of Prescott towers during the election, Greenpeace protesters yesterday walked into Ford's plant in Solihull and stopped the Range Rover production line. Apparently, the urban 4x4s made at this site are wrecking the climate, one model has worse fuel consumption than the Model T of 80 years ago, and making cars like this for urban use is crazy when 150,000 people are dying every year from climate change.

Apart from the specious nature of this last statistic, it begs the question of whether it would be OK to make Land Rovers if only 1,500 people were "dying every year from climate change". Perhaps every buyer of a 4x4 should have to promise to plant a tree, or sign a statement swearing they didn't live in SW3. It would make quite as much sense as the Greenpeace protest, and about as much difference.

The 70 vehicles lost from production yesterday will soon be made up, and in terms of numbers they make a negligible impact. They may seem to be everywhere, but only 3.6pc of the cars in London are 4x4s and half the Range Rovers sold actually do go off-road. Across the range, including those luxury monsters, Land Rovers return 30mpg, about the same as a Mini Cooper S or Ford Mondeo V6.

These stunts grab headlines (and comments like this one, which is why the protesters do them). Who could forget the fleet of toxic ghost ships, laden with harmful chemicals and heading for a breaker's yard to pollute pristine Teesside? As usual, emotion overwhelmed science, and the ships were stopped.

In that case, Greenpeace realised that sending them to a specialist breaker's yard was far better for the planet than stripping them by hand on a beach in Bangladesh. Unfortunately, the damage was done; 18 months on, the ships are still unbroken, and the Environment Agency is still objecting.

The real target for the Land Rover protesters is not so much the cars but the people who drive them. The stunt staged by a group called the Alliance Against Urban 4x4s, handing out mock school reports (marked "fail") to mummy as she blocked the street while disgorging her precious cargo at the school gates, had a real point. Of course, the protesters probably never faced the challenge of finding a decent school within walking distance, but that's another story.

The Art of maximising tax revenue - less equals more

Useful economists are rare, so we should be grateful to Art Laffer. In 1974, dining with two ambitious young politicians called Cheney and Rumsfeld, he drew a curve on a napkin to show that since 100pc tax raises no money, there must be an optimum rate to maximise revenue. He guessed it might be quite low, since high rates destroy incentives and encourage evasion.

He's been proved right, not least here, when abandoning punitive rates of income tax led to a surge in receipts from the top earners, and now it seems to be happening again in the United States, following an unexpected jump in tax revenues. When President Bush chopped the top rate of income tax from 39pc to 35pc, predictions of the budget deficit were so big as to use all the world's zeroes just to write it down. Markets were braced for an ocean of Treasury bills to finance it, driving up interest rates and inflation.

Now Laffer is having the last Laff. The Federal Government recorded a $57billion surplus in April and income tax revenues leapt 16pc compared with last year, as Americans worked harder and made less use of tax loopholes. The annual deficit remains but the boffins at Morgan Stanley are so impressed they have just cut their forecast for this year from 3.6pc of GDP to 2.8pc, small enough to fit into the euro's Stability and Growth Pact, as if anyone cared. So for those who want to know why the dollar is rising, the answer is simple: they are printing fewer of them.


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