Growth eases Brown's pain

GORDON Brown will tempt fate with an air of triumphalism in his Pre-Budget Report tomorrow. Against the expectations of much of the City he will bring growth in this year within his predicted range of 2% to 2.5%.

Evidence of the pick-up in the pace of expansion is provided by manufacturing data showing a 1% spurt in October. This was fuelled by a bounce in hi-tech sectors that climbed by 2.8%.

The official figures are now catching up with the surveys, which have been pointing to a return of manufacturing confidence. Manufacturers are starting to see some return of pricing power, according to inflation data.

The output numbers, with a sharp upward revision in gross domestic product estimates from the National Institute, will allow Brown to draw contrasts with the rest of Europe. What will be less satisfying for him is the way in which borrowing is running out of control. Higher growth is meant to fuel the revenue take, but so far there is little sign of this.

A surge in borrowing from the projected £27bn to £33bn or even higher will send a frisson of worry through financial markets. Although Brown will seek to avoid any increase in general taxation before the next election, Oliver Letwin, his Tory shadow, will be keeping a watchful eye for new taxes to add to the 60 increases that they claim have been imposed by Labour since it came to office.

Changes in the way transfer prices are assessed by the Inland Revenue are seen as one way in which the Treasury might claw back additional cash.

The Tories will also focus on Brown's failure to make any progress in dealing with Britain's lamentable productivity performance. In particular the Opposition is concerned about the diversion of resources from the wealth-creating private sector to the public sector, where productivity is substantially lower.

There are a couple of financial issues Brown needs to think about too. The pound climbed to an 11-year high against the dollar at $1.732 in latest trading. This could make life more difficult for a recovering export sector.

The combination of bigger government, the credit explosion and manufacturing's demands for capital to expand will place upward pressure on interest rates. These factors could weigh heavily on output expansion next year despite the take-off across the Atlantic.

Payout culture

BY the standards of BSkyB where former chief executive Tony Ball has marched off into the sunset with a £10.7m 'non-compete' payment, the severance package for Michael Green of Carlton is relatively modest.

But was it necessary at all? After all, Green was forced out at Carlton under pressure from shareholders who did not want him anywhere near the new ITV after the £1bn which Carlton and Granada squandered on trying and failing to be a digital player.

In the case of Green, the claims for compensation were even weaker than usual. Having worked at Carlton for 34 years he already has built a substantial pension pot. He also benefits from the regulatory clearance of the Carlton-Granada deal since he owns shares worth an estimated £25m. So his payoff is cocking a snook at shareholders who removed him from office.

But when it comes to compensating one of their own, boards are only too willing to give in to pressure. Over at Granada, Charles Allen has agreed to reduce his contract from two years to one without compensation. But before anyone celebrates this magnanimous gesture, they should consider how little difference it made to Green that he had no contract at all when negotiating his package.

When and if Allen does go he will still be entitled to a termination bonus and a non-compete package. We know from Conrad Black and Tony Ball how big that can be!

Unsafe offer

PITY David Webster, the wily chairman of Safeway. Having rubbed his hands at the thought of a grand auction at the start of the year, he has been left by the competition authorities with only one option - to sell to Wm Morrison. At a stroke the authorities removed Safeway's property rights and deprived shareholders of the 'best' price for their investment.

The last best hope for Safeway now is the power of 'value investors' led by Fidelity, who have built up a commanding 35% stake. They will not stand for any gimcrack bid from Ken Morrison.

They are entitled to stand firm given the hidden asset - impossible to value - of Safeway's planning consents.