Electricity alarm bells ring

WE do not yet know the full story of the power cuts that plunged London into chaos last night, though National Grid Transco clearly has some critical questions to answer.

Whatever the cause of the blackout, it will provide ammunition to those who have been warning that the UK is flirting with a power disaster.

As recently as a fortnight ago, NGT was shrugging off fears in the wake of the US failures, saying it was confident the UK would not be affected, and that the last blackouts were down to the hurricane of 1987.

But yesterday was the capital's first cold-ish day after a sweltering summer. If the extra demand for power was enough to send the system into crisis, then we really are in trouble as winter looms.

Regulator Ofgem claimed the blackout was nothing to do with new and complex electricity market arrangements. But we used to have a fat safety cushion against power emergencies, when generating capacity was 25% in excess of demand.

Not any more. Since the government introduced the New Electricity Trading Arrangements (Neta) two years ago, some 10% of our generating capacity has been mothballed.

The darkness in London is an ominous sign.

Swann's Way
KATE Swann, the new chief executive of WH Smith, will be swimming against a tide of troubles when she takes up her job.

The retailer's shares tumbled 25 3/4p to 351 1/4p yesterday after a warning that full-year profits will be lower than the City expected.

Chairman-in-waiting Richard Handover, who described poor sales last Christmas as a 'blip', was this time pinning the blame on the heatwave. It seems the sunshine lessened the public's enthusiasm for book and stationery buying.

The heat was not the only problem: he blamed the war in Iraq and Sars for hitting profits in airport outlets. Sales in the High Street stores will be flat in the second half and gross margins will be down because of pricing pressure on CDs and DVDs.

The City is crossing out earlier profit forecasts of roughly £116m and pencilling in numbers around the £103m mark.

The future of Smith's loss-making US hotels and airports business remains up in the air, to the disappointment of analysts who had hoped for a sale.

But despite its growing list of excuses, the underlying problem at WHS is that it is being squeezed on all sides. It faces price pressure from supermarkets and dotcom operations on book and entertainment sales.

Some stores seem stuck in a 1970s time warp. A recent visit to a WH Smith evoked a flood of childhood reminiscence of stocking up on pencil cases and protractors before the new school year.

Speculation earlier in the year that venture capitalists were about to pounce has ebbed away since Swann's appointment, which was viewed as a coup.

Still only 38, she is rated as one of the retail sector's rising stars. She rose rapidly to become head of Great Universal Stores' Argos operation, a business she helped to turn around.

Shareholders appear ready to give her a chance to repeat the trick at WHS. But she will have to show her mettle quickly or the predators will swoop.

Debt alert
A TIMELY warning has come from Bank of England director Paul Tucker, who says that indebted households should budget for the impact of an increase in interest rates on their finances.

From student loans to pensioners living on equity release, many Britons now are in hock from 18 until their dotage. As Tucker says, it may be the case that households can prudently take on bigger debts than in the past, if macroeconomic stability has made their finances more secure.

Many families still have a substantial cushion of equity in their homes, which increases their ability to smooth out cash problems. Interest rates are unlikely to rocket as they did in the late 1980s.

But there is no getting away from the fact that increased debt leaves borrowers with greater vulnerability to shocks.

The spend now, pay later craze has obscured some points about borrowing. Credit brings forward consumption. It should be used with caution unless you expect your income to go up, or you plan to reduce your future outgoings.

Even at low rates, the cost of paying interest means that borrowing is a trade off between buying something now, and being able to afford to buy something better later.

The borrowing binge has been conducted on the basis that debt is cheap. Having no debt is cheaper.