Mark Kleinman: Labour and Tories yet to win business over
Mark Kleinman is Sky News’ City Editor and is the man who gets the City talking in his weekly Morning Wire column. This week he tackles Labour and the Tories’ attempts to win over business, IP Group investors and Thames Water.
Labour and Tories yet win business over
Let battle commence. Rishi Sunak’s decision to call a snap summer general election achieved a rare thing in politics: uniting business leaders, economists and his own (diminishing) ranks of MPs in bemusement.
Coming the day after statistics revealed inflation coming back to within reach of the Bank of England’s two per cent remit, the Prime Minister seemingly presumed this provided sufficient ballast to bolster his flagging electoral hopes. Yet that number pales into insignificance compared to where most homeowners are feeling the pinch right now: lofty interest rates. Why not wait until one, or maybe two, rate cuts by the Bank of England had fed through to consumers’ pockets?
The answer lies in Sunak’s belief that delaying the election further would merely be storing up bad news. Far from ‘stopping the boats’, the illegal immigration tide is likely to worsen in the second half of the year, while seasonal patterns of demand on NHS resources might mean a summer poll dilutes one headache for the Tories.
The campaign may be at an embryonic stage, but it has already produced an inversion of the usual electoral status quo: it is Labour, rather than the Tories, making the running in terms of business support.
This week’s letter demanding a long-term growth strategy, signed by the likes of JD Sports Fashion chairman Andy Higginson and former Aston Martin chief executive Andy Palmer, resembled many which have been circulated by Conservative backers at previous elections.
Yet all was not as it seemed: it had few genuine big names, while my Sky News colleague Ian King revealed that a small number of the companies to which signatories were affiliated were in fact dormant. Another, meanwhile, had left the company she had signed in connection with.
Nevertheless, there’s no denying a momentum shift. The Conservatives seem unlikely to be able to muster support for a similar letter in this campaign – and certainly not one backed by hordes of serving FTSE bosses.
Symptomatic of this malaise was the Tories’ rebuttal of Labour’s letter, a hastily cobbled together amalgam of critical quotes from bosses. Among them: ‘Richard Soames’, the CBI president. Unfortunately for CCHQ, his forename is Rupert, and he happens to be the grandson of Sir Winston Churchill. Seriously? Can’t Labour and the Tories, the country’s two major political parties, do better than this?
IP Group investors throw stone at Flints
City grandees don’t tend to come much grander than Sir Douglas Flint. The former HSBC chairman has become a dependable figure for government and industry bodies alike in post-crisis and post-Brexit overhauls of financial regulation.
His choice of private sector posts, though, has resulted in prolonged bouts of turbulence.
At Abrdn, the fund manager, he dispensed with chief executive Steven Bird last week – a move some investors have argued was long overdue.
Flint now has to decide whether to name finance chief and acting CEO Jason Windsor as the permanent boss, or go outside the company, even as his own term comes up for a triennial review by the board.
At IP Group, the technology company which has backed a wave of startups, Flint may not even have the luxury of choosing his own departure date. Shareholders including Lombard Odier, which owns close to five per cent, are said to be deeply unhappy with its performance.
According to people close to the situation, it’s Flint, rather than chief executive Greg Smith, in the firing line. IP Group declined to comment, but it looks like the company’s annual meeting next month could be a fiery affair.
General election delays Thames under a mountain of debt
It was a meme creator’s dream: the rain-sodden Prime Minister standing outside 10 Drowning – sorry, Downing – Street to announce a July election.
The aquatic metaphors do not stop there. For Ofwat, the water industry watchdog, the drip-feed of conjecture about the fate of the biggest company it regulates is going to take longer to stem.
Whitehall Purdah guidelines mean Ofwat had no choice but to delay its draft determinations on the business plans of the ten water companies under its aegis until 11 July.
Depending on your perspective, that either bought Thames Water a few extra weeks to draw up credible plans to raise equity from new shareholders, or prolongs its agony as it waits for insolvency to wash the existing equity down the drain.
Moody’s’ downgrade last week of debt held by one of Thames Water’s parent companies further into junk territory reinforces the belief that the latter position is more plausible. The resignations of a string of shareholder directors from Thames Water Utilities Limited and Kemble Finance further underline the company’s orphan status.
If existing investors are unwilling to finance the company, the likelihood of new sources of capital being identified seems ever more remote.
A financial penalty from the regulator punishing an unauthorised £35m dividend payment from TWUL to Kemble Finance risks further disincentivising new investment. That’s expected imminently, although given the political implications of Thames’s precarious financial position, it too could be delayed beyond 4 July.
Moral hazard means Ofwat is right to play hardball, but the water industry as a whole will find itself in the crosshairs of all the main parties during this campaign. Investors across the sector should brace for a darker outlook from politicians and regulators alike.