Fraud sends imports soaring

IF THE Office for National Statistics were a joint stock company, all hell would be breaking loose over the huge changes to its bottom line. As a result of apparent fraud, largely involving mobile phones and computer chips, imports were under-reported by an astonishing £11bn last year, £7bn in 2001, £2.8bn in 2000 and £1.7bn in 1999.

Trade figures have long been regarded as notoriously unreliable because they are the difference between two large numbers. Every year the International Monetary Fund puzzles over vast chasms in global trade.

The hole just revealed is all British and it is astonishing that somehow £11bn went astray last year. No wonder Customs & Excise last week engaged in a huge swoop on alleged mobile phone fraud.

What is as fascinating as the trade revisions is the impact on the overall performance of the economy.

If Gordon Brown thought output expanded at 1.5% in 2000 and 2.1% in 2001, he was wrong. This overstated growth by up to 0.2%. So Britain's stellar performance in the aftermath of the burst in the tech bubble and the strategic scares that followed 9/11 was considerably less glowing than thought.

We will not know the outcome for 2002 until the people with the calculators finish their work in September, though some upward revisions are expected.

Little comfort can be drawn from the May trade data. This shows that the deficit was £4.1bn against a figure revised up to £3.4bn in April. The deterioration was mainly in trade outside euroland. In terms of volumes, there is no clear evidence that the fall in the pound has helped.

Exporters have, however, regained some pricing muscle - with prices rising 3.5% against 1% for imports. That should help some exporters, if only there were expanding markets to sell into.

Broker Gerrard estimates that in the second quarter of the year the trade deficit reached 4.2% of national output, below the 5% level some analysts see as trouble. But when surpluses on services and investment flows are added back, Britain's current account looks reasonably healthy.

Nevertheless, the fraud that resulted in understatement of imports masks a weaker economy. It may be another reason for the Bank of England to cut rates today.

Dyke dividend
THE move from the Birt to the Greg Dyke era at the BBC appears to be paying some dividends. Aside from the healthy independence it has shown in the face of an unprecedented Labour onslaught over the Iraq dossier, it is also making financial progress.

Income from both the licence fee and commercial activities - known as BBC Worldwide - is increasing. This year, the licence generated a record £2.6bn, Worldwide chipped in £123m and there was a further £6m from technical and broadcast operations - in the black for the first time.

Since Dyke took over in 2000, overhead costs have been cut from 24% to 13%, so his 'cut the crap' credo seems to work.

There has been a massive expansion, with nine new TV and radio channels, new distribution kit that allows the BBC to broadcast on satellite (without Rupert Murdoch's help) and more digital equipment. This shoved up spending and wiped out the cash reserve of £250m.

What may hit the headlines is the move of the BBC's pension fund from £1bn surplus to £1bn deficit.

Unlike many quoted companies, the BBC is gritting its teeth and has written to staff pledging to keep a final salary scheme. With 55,000 people paying in and 20,000 pensions it sees no immediate problem.

The BBC's real problems would come if an angry government decided to kick away the substructure of the licence fee when the charter comes up for renewal in 2006. Then alternative sources of funding, ranging from government grant to subscription and advertising, would have to be considered.

The risk would be that the very nature of public service broadcasting would be altered for ever.

Targeting bosses
THE Balfour Beatty case raises serious questions as to whether individual directors and senior executives should be held personally responsible for mishaps on their watch.

Business groups argue no: to do so will reduce the gene pool of people willing to work in high-risk areas.

The alternative then is to charge the company. In such cases that would mean shareholders picking up the bill for irresponsible action by senior executives.

The corporate manslaughter charges are a sharp reminder to companies and those who run them of the paramount importance of health and safety.