CBI goes cool on Labour

THE love affair between business and Labour ended long ago. At next week's CBI conference in Birmingham many words of frustration and anger are likely to be spoken about government policies towards corporate Britain, despite the presence of star guests Tony Blair and Gordon Brown.

The battleground is mapped out by the CBI's director Digby Jones. He fears that a combination of tax increases - £57bn on his count - and the gradual erosion of a flexible labour market will make Britain a less competitive place.

In particular, he is sore at the government for failing to enforce the law to bring an end to wildcat strikes at BA, the Royal Mail and among the firefighters.

'We are burdening business with more tax than ever and actually making it more difficult to employ people,' Jones says.

None of this is very surprising from a CBI chief who has become increasingly confrontational. But his disaffection appears to be broadening.

Traditionally the CBI has been seen as being in the pro-euro camp because many of its larger multinational members such as Unilever and Vauxhall believe in it. But when it comes to the 'tidying up' exercise of the European Constitution, Jones is spitting blood.

The problem with the constitution, he asserts, is that the ' drafting is very vague'.

Among other things, he sees it undermining oil licensing rights in the North Sea. The draft's references to 'the right to strike' in his view could destroy labour market flexibility in Britain.

Jones recognises that the CBI needs to be more self-critical. It has to be 'seen to polish its image' in the light of the fat-cat pay and payment-for-failure scandals.

Much as wildcat strikes could cause the public to lose confidence in government and the unions, so behaviour in the boardroom could do the same to Britain's companies.

Jones supports the 'overall thrust of Higgs' - author of the report on board governance - but admits that he drew the line at the idea of a strong senior independent director 'who would undermine the status and power of the chairman'.

Investors attending today's agm of BSkyB might well disagree and can only pray that there will be a counterweight to Murdoch power.

I have the impression that Jones finds Tony Blair easier to deal with than the Chancellor. The Prime Minister, for instance, recognises that the £1.4m pension cap may be far more intrusive for business than the Treasury admits.

Brown's team says that just 5,000 people are affected. But from an informal survey of his members, Jones fears the number could be closer to 400,000.

If that is the case, some rapid government back-pedalling will be necessary.

Mutual destruction

THE shock waves from Eliot Spitzer's clampdown on mutual funds are being felt around the world. The latest London-quoted fund manager to come under scrutiny is Old Mutual.

It revealed that the two most senior managers at its US offshoot, Pilgrim Baxter & Associates, have beaten a hasty retreat after an internal probe.

The founders of the firm, Harold Baxter and Gary Pilgrim, had been buying and selling units in their own funds and diverting them into a private partnership.

At the core of the fund scandal is a question of timing. At most mutual fund groups the daily price is fixed at 4pm.

This creates a trading window for both the principals, who run the funds, and their biggest clients, because fresh information - including earnings reports - emerges after the markets close. This allows those in the know to adjust their holdings before the next price is fixed.

Suffice it to say, the smaller investors, who have their life savings in mutuals, are not part of this information loop.

In New York it was a red letter day for Spitzer, with subpoenas for information landing at several institutions, including the Bank of New York - all part of the $7,000bn US fund management industry.

Should we care? Very much so. Aside from the fact that several British firms including Amvescap and Old Mutual have got into the firing line, there is a systemic issue, too.

The concern of senior regulators on both sides of the Atlantic is that if the scandal is shown to be as widespread as feared it could destroy confidence in the whole industry. Billions of dollars could flow out of funds in redemptions, causing a liquidity crisis.

Spitzer has uncovered a hornet's nest which could prove more toxic than the investment bank-analyst imbroglio.