Lagarde turns up the heat

UNtiL now the Chancellor George Osborne has always had international Monetary Fund managing director Christine Lagarde on side.

But the latest word from the iMF, in its July report card on the British economy, does appear to open a gap, if not a chasm, with the treasury.

the Fund argues that current policy, even with some recent midcourse corrections, may not be enough to absorb ‘significant slack in the economy’.

to be fair to the Chancellor, he has begun to react to this.

this month has seen additional quantitative easing from the Bank of england, the start of the £80bn ‘funding for lending’ scheme and in the last few days there have been moves to use Britain’s strong credit rating to speed up some largely private sector infrastructure projects.

But with output 4pc below 2007 peak levels, the iMF clearly believes it is time for more radical thinking, including revising the 2010 emergency budget fiscal settlement. it suggests ‘neutral reallocations’, which essentially means finding new cuts to finance public investment which have a chance of boosting output faster.

Among the steps it proposes is cutting stamp duty on house purchases and recovering the lost income through taxes on the value of properties, and easing down pay, benefits and pensions in the public sector that have raced ahead of those in the wealth creating part of the economy.

the Fund also suggests reforming corporation tax to make equity more efficient than debt.

All of these are good suggestions. As this paper has argued before, bringing down absolute tax rates, even if this means taking a meat axe to protected spending, might provide the lift to confidence that consumers and businesses urgently need.

Pedalling away

ONe wonders how quickly G4s shares would rise were Nick Buckles to fall on his sword now? the magic that departure can inject to a falling share prices was illustrated yesterday when David Wild’s sudden resignation from Halfords was greeted with a 10pc surge in the shares.

Under Wild’s stewardship Halfords shares have halved since 2010. this despite the fact that Britain is going through a phase of bike-mania, likely to be reinforced by Bradley Wiggins’s exploits in the tour de France, and motorists are having to repair cars rather than buy new ones.

Wild’s expansion in auto-centres looks to have paid off with sales up 9.6pc in the first quarter and the main problems coming from the shops. Halfords, like much of the high street, cannot escape the weather that has made the great outdoors less attractive, or competition from online shopping sites.

it is hard for individual retailers to outpace the algorithms owned by Amazon, eBay and the like that are so good at targeting customers.

the shareholder spring continues to carry some force and the days of failed chief executives walking away with sacks of options, benefits and other cash looks to be over. Wild will collect £654,399, a year’s salary, paid out in monthly instalments.

it is worth noting that Wild came to Halfords from tesco via Walmart so the read across from mainly grocery to a different form of retailing may not always work.

this may be an ominous thought for Marc Bolland and John Dixon at Marks & spencer, both food specialists that are faced with preventing a free-fall in womenswear sales.

even in the current straitened consumer times, with household incomes under the cosh, some retailers such as Mike Ashley’s sportsDirect seem able to buck the trends. the goods may be cheap, the stores may look like penny bazaars and the brands on sale busted flushes. But the incentives to the workforce, with a healthy bonus system based on share price performance and sales, seems to work wonders for 2,000 managers.

it is a sort of John Lewis-lite. Other retailers could do worse than take a look.

Oh, Canada!

WHO is the best person to listen to on Libor reform? How about Mark Carney, governor of the Bank of Canada who chairs the global Financial stability Board.

Carney says it may be time to abandon the current flawed system of setting inter-bank rates, by submitting bids, and moving towards ‘more market-based rates’.

these might include repo rates, prevailing interest rates in the money markets such as those on Us treasury bills.

if that means that different countries set their own benchmark rates so be it. that might not be that popular in London where most rates are currently set by the lacklustre British Banking Association. But can the City afford to ignore Carney? He could, after, all be the new, unsullied governor of the Bank of england.