Major problem for Myners

NOW that Marks & Spencer has dispensed options to its new executive team, the next big decision will be the choice of chairman.

Paul Myners, who took on the role of interim chairman for the Philip Green bid, originally indicated that he was not interested in the job permanently, because of other commitments.

But after the adulatory reception he received from private shareholders at last week's annual meeting, Myners is indicating that if asked to serve he will. But not all M&S's long-term, British investors are keen on this idea.

There is admiration for the tenacity that Myners demonstrated in seeing off Green. But there is a view that the way in which the Monaco-based billionaire was locked out was 'not morally right'.

The fund managers argue that Myners and Rose failed to take enough account of investors interested in Green's 400p and should have treated the offer more seriously and with greater courtesy.

Some big investors will now give the new team a chance to deliver their promise that the shares are worth more than 400p. But one major shareholder argues that Myners, in the interest of good governance, should step back to his original role as an independent director and not seek the office of chairman.

It is questioned whether Myners has the right credentials for heading a major retailer and keeping Stuart Rose, a powerful personality in his own right, in check.

A second fund, with one of the biggest UK holdings in M&S, also expresses its doubts about Myners' leadership and argues that he has far too much on his plate to take on such a pivotal role in British business.

Aside from his board activities, Myners is involved in quasi-government-work and is due to deliver a report on the pensions industry today.

A private investor, who has held high office at Marks & Spencer, questioned the way in which Myners as chairman allowed the M&S pension fund to become a weapon in the battle to resist Green.

It was noted that the pension fund trustees resisted Green's advances on the basis that, if his Revival vehicle controlled M&S, it would have far more leverage and therefore would need to bolster the pension fund (which had a £670m deficit at year end).

As a result of the strategy plan unveiled by Myners and Rose, M&S's leverage will increase substantially to help the funding of the £1-a-share loyalty payment to shareholders.

This could also affect the underpinning of the pension fund. M&S insists it is unlikely to make much difference, because the new debt it issues will be investment grade.

This may be the case. But the same M&S board representatives and pension fund trustees who were so willing to deliver a blow to the Green bid almost certainly have a responsibility to explain to investors and pensioners the consequences of staying with a reshaped M&S.

Myners has withstood a corporate siege as protector of Britain's iconic retail group. Now he faces one of his own.

Defiant Brown

FEARS that Gordon Brown's spending plans will open a chasm in the public finances will be eased by the latest borrowing figures. These show that despite rapid growth in expenditure, up 10.3% at £36.3bn in June, government borrowing came in lower than a year ago at £5.7bn.

The better-than-expected outcome is largely due to improved revenues, with corporation tax and national insurance contributions up sharply. Until now, a big City concern has been that robust growth has not been matched by higher tax revenues.

In fact, the underlying trend in the public finances looks far better than most of the City analysts forecast. The final outturn for 2003-04 was a deficit of £34bn, a sharp downward revision from £37.2bn. This suggests that the Chancellor could hit his target of £32.9bn this year.

Despite this, it is worth noting that accumulated national debt is on the rise at 33.3% of national output against 31.8% this time last year.

This is not so surprising when one looks at trends in public spending. Figures released by the Treasury show the sheer scale of Labour ' s commitment of resources to public services.

In 1998-99, the government was spending £11.7bn on education, a figure which had almost doubled to £20.3bn by 2002/3.

In health over the same period, spending climbed from £38bn to £53.5bn. Both these areas were targeted for further big increases in last week's spending review.

Brown's dependence on efficiency savings and asset sales of £30bn to keep within his fiscal rules over the economic cycle raised eyebrows last week.

But for the moment his Treasury forecasters are defying the odds and outperforming the City.