Hard Labour on pensions

HURRAH for Tony Blair. He finally has discovered that the nation faces a 'serious problem' over pensions provision. The problem is that his Downing Street advisers are determined to frame the solution in their own, inimitable knock Middle Britain way.

Ros Altmann, the expert deployed by Downing Street to produce what is grandiloquently described as 'the largest study of public opinion ever to be conducted in the UK on the issue of retirement' has managed to come up with exactly the results the Government has been looking for.

Some 57% of those polled think that everyone should get the same amount of tax relief for the same contribution and 29% think people on lower incomes should receive greater tax incentives.

The killer statistic for Dr Altmann and her team is that only 4% support larger tax breaks for larger incomes. In other words, this flawed poll is making the case for the abolition of upper rate tax relief. But upper rate tax kicks in for most people at close to £34,000, and so is not a benefit for the super rich as New Labour would have you believe.

One does not have to be a genius to realise why Labour has its eye on the tax relief on pensions, which will cost the Exchequer £14.4bn in the current fiscal year. But the idea that taking this relief away from upper income tax payers and redistributing it among less well-off taxpayers will resolve the pensions crisis is unproven. Nor does it enjoy enthusiastic support at the Treasury.

We know from the failure of the stakeholder pensions scheme, Labour's only big idea so far on retirement, that the take-up has been extraordinarily disappointing. If the Government follows the opinion poll, it would seek to replace the tax reliefs with matching contributions of £1 for every £1 saved.

This is a laudable idea, but the betting must be that the 27% of people who say they cannot afford to pay any more would become a much larger figure - especially when one considers the rising cost of stepping on to the housing ladder and the daunting prospect of top-up fees at university. The savings ratio in Britain is at an historic low. Removing tax relief on pension contributions so soon after emasculating occupational schemes with the loss of dividend tax relief would be a recipe for disaster.

Flying high

RYANAIR'S first-half results look almost too good to be true with profits soaring by 71% on revenues ahead 35%. When companies grow at this kind of rate, particularly in an industry that has had more than its fair share of casualties since 11 September 2001, one begins to smell a rat.

Not a bit of it, says Ryanair's ebullient chief executive Michael O'Leary, who insists: 'There is no Enronitis here.' The group's switch to larger, more efficient Boeing 737-800 aircraft appears to be paying off handsomely, allowing it to push up passenger yields by keeping costs down.

Ryanair and its main cut-price competitor easyJet have benefited handsomely from the terrorism attacks. These exposed many of the European flag carriers as outdated heavyweights, boxed in by heavily unionised staff and over elaborate route structures. Of the weaker carriers, Swissair and Sabena have thrown in the towel, others such as British Airways and Lufthansa have scythed costs.

The model by which Ryanair and easyJet live is US airline Southwest, one of the greatest corporate success stories of the last quarter century. While much of the US industry is in or close to bankruptcy and spends a great deal of time begging bail-outs from the Federal government, Southwest and newcomer Jet Blue (where the pilots help to clean the planes) are expanding rapidly.

All of this poses difficult questions for the flag carriers. I recently returned from the US on an extremely comfortable British Airways flight where the crew almost outnumbered the passengers.

Moreover, even though Rod Eddington has begun to cut away at the treacle layer at BA's Waterside headquarters near Heathrow, he is only just beginning.

Nevertheless, the market is clearly expecting something much better from BA when it reports today, the shares having climbed 60% over the past month. There is a clear impression that second-quarter profits will more than double, that the balance sheet is improving and that it may have turned the corner.

Still, Eddington and investors need to keep an eye on Iraq as the Western allies step up their war preparations.