Gordon Brown will focus on prudence in his Budget but companies should concentrate on taking more chances
THE Chancellor of the Exchequer is unlikely to be able to resist using one of his favourite words – prudence – when he presents his Budget this month. To be fair to Gordon Brown, he has helped ensure a stable f iscal and economic backdrop for UK-based businesses in the last decade so he is probably entitled to hold forth on the subject
The fact of the matter is, however, that what a UK Chancellor says in his Budget is ever less likely to affect financial markets and share prices, barring some kind of lapse into the kind of economic mayhem seen in the late 1980s and early 1990s.
That said, prudence at home has never been more essential given the increasing risks UK corporations face in a globalising world. If they can rely on sound regulatory and tax systems at home, they are freed up to exploit the opportunities of globalisation.
For all the bluster which accompanied the last increase in North Sea taxation, big risks are not residing at 11 Downing Street.
Look, after all, at the shenanigans of the Russian government over BP and Royal Dutch Shell’s interests in a country with massive oil reserves but a whole different business ballpark. This is not to say these opportunities are not worth pursuing just because they carry a higher risk.
Lord Stevenson, chairman of Bank of Scotland parent HBOS, at the recent “New Enlightenment” gathering organised by Sir Tom Hunter in Glasgow, dwelled on risk management.
He even set aside rivalries to describe Sir Fred Goodwin, chief executive of Royal Bank of Scotland, as a “brilliant risk manager” in negotiating the purchase of a stake in Bank of China in 2005 which would have given him his money back if the Chinese flotation had bombed. In fact, the value of the RBS stake has roughly quadrupled as Bank of China surged.
And it is not just developing countries where the big risks lie.
RBS was among the banks hoodwinked by fraud at US energy giant Enron, although it could be argued the turncoat Texans were not hindered by America’s twin obsessions with continuous quarterly earnings growth and the literal meaning of the rules rather than a principles-based system.
Even the more controversial actions of Gordon Brown pale into insignificance for big businesses operating in the UK relative to the myriad international risks.
While the recent environmental tax on flights caused much ranting by Ryanair chief executive Michael O’Leary, his airline’s shares have still been hitting record levels.
British Airways shares are largely untouched by this tax. In stark contrast, it and its peers around the world were laid low by the September 11 terrorist attacks.
Back in the oil sector, it was not North Sea tax which brought Aberdeen-based Ramco Energy to the brink but rather the crystallisation of geological risks at its Seven Heads venture off Ireland.
And look at the North Sea regime comapred to Venezuela, where president Hugo Chavez is intent on nationalisation of oil and other industries.
So we’ll allow Brown his references to prudence, and hope he ensures the main focus of companies’ growing risk management abilities remain overseas.
Ian McConnell is Business Editor of The Herald